Facebook Inc (FB) F8 – were they impressed or not. Cantor is indeed liking what they see. They state: We walked away incrementally more constructive on FB post F8 yesterday, a gathering that highlighted the company’s rich portfolio of brands and management’s 10-year vision. Particular attention was given to Messenger, the instant messaging service, which is being augmented with chatbots and other functionality to develop into a richer platform for communications and commerce. We believe management is building Messenger into a “portal”, which will create an ecosystem that keeps its massive user base within its walls, engaged whether these users are communicating with friends and family, consuming content, communicating with businesses or transacting (preferably doing all four!). If successful, Messenger has the potential of becoming a material third leg of the “monetization stool” for Facebook, a potential not reflected in our estimates currently. While the lines may get a bit blurry between Facebook and Messenger, and there may very well be some cannibalization between the two platforms since both are competing for our time, we view the two as offering distinctly different value propositions, and any cannibalization should be viewed within the broader goal of keeping users engaged within the Facebook family of brands. We maintain a BUY rating and $140 PT.
However, other analysts are a bit more cautious. Mizuho reports: We spoke with a number of smaller developers and a few large agency partners at F8, and our checks came out mixed. Most of the developers we spoke with indicated that pricing on FB mobile app install ads has increased significantly, and a few told us that they are reducing overall marketing spend or moving some spend to other sites like Twitter or Google for app install ads. On the other hand, two agencies we spoke with noted that spend on FB continues to be robust, and brands are now increasing spend on Mobile with new formats like video and Canvas ads. Netnet, we believe that Street estimates for 1Q seem reasonable, but upside potential could be limited.
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Here is what others on the sell-side are saying.
We like the Bots strategy, but only for solving certain pain points like the KLM example. We think in western geos, apps and websites do a pretty good job of accomplishing most of these tasks already (like media distribution, shopping etc) so the Bots idea will likely only gain traction in certain use cases where a big improvement in utility is realized. The parallels to the APAC region messaging fall short here, as those examples were mobile-first environments (low PC usage), had onerous SMS fees, and other cultural factors drove the chat ecosystems. We had previously assumed Messenger was 1 year behind Instagram in terms of its monetization plans, but admittedly are pushing back our expectations from previously “on-boarding in 2016, deployment in 2017” by at least one year given the current state of progress. Our $10B combined revenue math for WhatsApp and Messenger by 2020 is still largely intact (but not yet in our model), as user growth is outstripping our previous expectations. We are still struggling to see how Messenger paid formats materialize without a “promoted accounts” type ad product, but cross-promotion of Bots with core Facebook newsfeed ads is a smart way to get things jumpstarted near-term.
Messenger monetization. At Facebook’s developer conference this week, the company announced that it will begin a “small test of sponsored messages”. While this is in its early stage, we hope to hear more about this on the call.
F8 featured a variety of product enhancements and rollouts and presentations by numerous FB executives on different business segments. The focus was on users, advertisers, and especially, developers. Appropriate, given that this was a Developer Conference… Among our major takes, we’d highlight: 1) More evidence that the already very large Facebook platform is expanding rapidly. 2) An increased focus on monetizing Facebook’s large messaging platforms (with Messenger at 900MM+ users and WhatsApp more than 1B+), especially with the use of Bots. 3) A continued shift to video content on Facebook, and special emphasis put on Live. 4) Discussion of virtual reality / augmented reality being the next major wave of computing technology (following Mobile). 5) The company remains focused on the very long-term, with much of Mark Zuckerberg’s keynote addressing FB’s 10 year plan of increasing global internet connectivity, improving artificial intelligence and continuing to develop VR. We’d note that many of these highlights were similar to 2015’s F8 Conference.
We attended the Facebook F8 developer conference where FB highlighted its 10-year plan for developers that includes connecting the world (still 4.5bn people that are offline) to drive more users, using artificial intelligence to improve Facebook content, and building a virtual reality platform, which will improve social interaction. Facebook also highlighted several new products/tools including: 1) bots – tools that send automated messages in Messenger, 2) live video and video search, 3) Oculus VR, and 4) a 360 degree open source video camera for capturing immersive video.
Bots for Messenger. Facebook announced it will enable businesses to interact with customers through bots on Messenger. Mr. Zuckerberg feels Messenger is the next big platform for sharing privately and connecting users with businesses. In 2015, 1 billion messages were sent between people and business. The company announced it now has 900 million monthly active users (MAUs), up from 800 million previously.
Machine learning/artificial intelligence underpins almost every new product and platform at Facebook, and at the annual F8 developer conference, Facebook showcased its applications, ranging from Messenger chat-bot support to image understanding in Newsfeed and real-time video classification. While the technologies powering these services are not readily apparent to the consumer, we believe Facebook’s ML/AI innovations (much like GOOG/AMZN) will prove a significant competitive advantage, and importantly, drive incremental revenue growth when applied to areas such as marketing solutions (more relevant ads) and e-commerce (B2C Messenger support)