From Quantity to Quality: Facebook Grows Up

Close up of young businessman showing thumbs up isolated on white background

Facebook (FB) is still a young company, but now it’s growing up. That seems to be consensus after last night’s earnings report.

There was a painful hit at first because North American usage fell for the first time ever. The news seemed to confirm earlier fears that changes in its News Feed and algorithms would reduce traffic.

But then the good news came as management outlined a path to extracting more moolah from its huge customer base. Two clear themes emerged. First, advertising prices are on the rise. Second, they want to turn their Messenger and Instagram services into a giant communications portal for businesses to interact with the public. Cementing both of these together is the growth of “Stories” — a format that quickly amalgamates pictures, videos and text.

In other words, FB is shifting from sheer numbers of eyeballs to better monetization. Quality, not quantity, is becoming the new mantra. Analysts up and down Wall Street cheered the news and investors responded by driving the stock to new record highs.

One final thought: Remember when (AMZN) was just a bookseller, or Netflix (NFLX) was a quirky DVD-rental service? In both cases, visionary CEOs built their customer bases in one market before pivoting into higher-value areas. It’s not like tech investors haven’t seen this happen before.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.