Market Insights / Commentary

From quantity to quality: Facebook grows up

By David Russell

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 Amazon.com (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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