Gavin Baker
4 min readJan 31, 2019


Facebook should be up more than 20% on this quarter’s results. Rereading the transcript makes it clear they are refocusing on product and monetization. Night and day vs. Q3. ROAS on stories is high. This might be the only thing you need to know.

Important to realize that Facebook has a high degree of control of revenues in the short term — via ad load and their influence on engagement — and complete control of the opex. I believe Facebook made a decision in mid 2018 that regulation was the highest threat to the company.

And to give them credit, I think they were upset at the way their platform was being used by bad actors. They have spent a vast amount of opex and capex addressing these issues, which helped both substantively and optically in that it made $FB appear weakened, which is regulatory shield of sorts.

All of this was compounded by a natural shift in engagement to stories, which as a new format did not monetize as well as newsfeed. Some chance Facebook accelerated this shift to slow down their revenue growth and really eliminate Snapchat as any sort of long term threat.

“Carthago delenda est” and “never let a crisis go to waste.” (Perhaps the first time Cato the Elder and Rahm Emmanual have been quoted in the same sentence).

Everything that has been reported in the press is a trailing liability. They get it. “We’ve fundamentally changed how we run this company.”

End to end encryption will be the way they justify unifying their platforms, which will further improve monetization especially on their messaging products. More ephemerality will improve the product (Snapchat was right about everything, basically).

“I’m talking about major improvements to people’s lives that whole communities recognize and say, “Wow, we’re all doing something new on Facebook or on WhatsApp that we weren’t doing before.” The last experience like this was Stories”

“the reality is, we’ve put most of our energy into security over the past 18 months, so that building new experiences wasn’t the priority over that period. So this year, I think we’re going to deliver several of these new experiences.”

Messaging at the center of social experiences. Payments in Whatsapp. More private sharing in both Groups and Stories. Commerce in Instagram with “qualitatively new experiences” coming. Segregating video into Watch makes for a cleaner newsfeed experience.

400m MAUs on Watch with 20 minutes/day of viewing. Youtube might emerge as the most valuable part of Google and Watch looks like the only competitor outside of Twitch.

“We’re making it easier for advertisers to adopt their campaigns for Stories. In Q4, we expanded automatic placements, which converts feed ads into a format that works for Stories and delivers ads wherever they’ll get the best results.”

“In Q4, we launched ads in Messenger Stories, which means advertisers can now easily buy Stories ads across Facebook, Instagram and Messenger.”

“Beyond Stories and messaging, we have an opportunity to connect people and businesses on new services like Marketplace. We’re seeing good early results at Marketplace ads.” For anyone wondering why the Ebay turnaround is tough.

Facebook is moving to report a deduplicated audience across apps, which is the most accurate and relevant number — and is also growing much faster than core Facebook. Instagram, Whatsapp and Messenger are the future. We will see if they can revitalize core Facebook with stories and groups.

“In Q4, the average price per ad decreased 2% and the number of ad impressions served on our services increased 34%.” This dynamic is driven by the shift to Instagram and stories. Very healthy. Similar to what happened at Google when Youtube kicked in.

“increasing commerce on Instagram, Facebook and WhatsApp, I think, is one of the most exciting product opportunities that we have… there’s also a very big opportunity in basically enabling the transactions.”

Note Facebook’s efforts in crypto. Two of the five best executives at the company are working on cryptocurrency. Facebook stablecoin is coming — will be hilarious if that is what finally upends the payments ecosystem given the current skepticism on cryptocurrencies.

Re: transactions (Facebook Stablecoin): “…The work that we’re going to do in Instagram also will go across the efforts in Marketplace and Facebook.”

“one of the interesting things about Stories is there’s a benefit to being an early adopter. So the pricing is really attractive.” That was the most important sentence on the call. ROAS on stories is high. The whole dynamic with stories is very similar to Facebooks early experience with mobile. Advertising dollars will follow engagement and ROAS.

Currently only 2m out of 7m advertisers are on stories. Auction depth and pressure is critical to monetization in second price auction and having more advertisers improves relevance (CTR), so the number of advertisers on Stories going up (which it is) is critical.

Conservative guidance for revenue growth to decelerate throughout 2019 is a big positive. Important to remember Q3 commentary about alignment of revenue and expenses in 2020.

Facebook is a top 3 position for me.

*This was originally posted on Twitter as a thread this morning.



Gavin Baker

Founder, CIO & Managing Partner, Atreides Management LP. Former Portfolio Manager, Fidelity OTC Fund. No investment advice, views his own. More: gavinbaker.net