August 1, 2019

Reading the Tea Leaves from Facebook’s Q2 2019 Earnings Call

Never have you heard anyone happier about a $5 billion fine than Mark Zuckerberg (as best Zuckerberg can be happy, that is). On July 24, Facebook held its quarterly earnings call, and while you’d expect the FTC, privacy, and elections to have been the focus, the call was all about “Stories, Stories, Stories.” Particularly, that Instagram Stories are continuing to grow in popularity with users and, in turn, with advertisers.

So what’s a Story Ad and why does it matter?

Wait, What’s a Story?
A story is a relatively new format that’s popped up on social media in the past three years. While the most popular is Instagram Stories, with 500 million active users, almost every social network has jumped on the bandwagon, with WhatsApp Status, Facebook Stories, experiments with story-like formats on YouTube and Pinterest, and, of course, the originator of the Story format, Snapchat. (If you’re unfamiliar with Instagram Stories, social media management tool Hootsuite has curated some nice examples here.)

The story format is some combination of the following elements:

  • Augmented photos or short videos, watched sequentially;
  • A vertical format;
  • Disappears after 24 hours (though you can keep them around, like Instagram’s Story Highlights);
  • Face Filters – animated masks you can apply to a video of your face in real time;
  • Text splashed anywhere on the screen;
  • Stickers made of emojis or animated GIFs used to decorate the posts;
  • Interactive features, like polls and sliders; and
  • Swipe-ups – Essentially link clicks that bring up an outside website and are only available to Instagram users with more than 10,000 followers or in paid media.

A much more limited feature set is available to Instagram Story advertisers.

The Feed is Tapped Out
“In terms of Facebook and Instagram feed, we’re at a place where there are not as many opportunities to grow ad load going forward. And I think where you have opportunity is in an area like Stories, where we’re seeing stronger overall engagement growth and it has a lower effective ad load today…. There are still incremental opportunities to grow Feed impressions, and we saw Feed impressions grow this past quarter on both Instagram and Facebook. But I think you’re going to see more of the opportunity from both an engagement and usage point of view and ad load point of view, be in areas like Stories.” – Dave Wehner, CFO.

During the call, Facebook revealed that it has now reached three million advertisers across Facebook, Instagram, and Messenger. In 2018, Facebook-only ad spend grew 40% year-over-year, while Instagram-only spend grew 177% during the period. This same report from marketing agency Merkle revealed that impressions are 20% higher and clicks are 9% higher on Instagram as compared to Facebook. Facebook attributes much of the decrease in ad price and increase in impressions to Instagram Stories. It acknowledges that ad inventory in the Facebook and Instagram Feed has little room for growth; that they are generating pretty much all the impressions they can.

Conversely, Instagram Stories has significant headroom, and Facebook is looking to grow the number of users beyond 50% (current Stories use), but increasing the frequency and duration of engagement among existing users. This creates more ad inventory and presents a huge growth area for Facebook, even as others have maxed out. As more users adopt Stories, advertisers will obviously follow the audience.

What’s Up with WhatsApp?
“WhatsApp Status is already the most popular ephemeral stories product in the world, and we continue to see good momentum there.” – Mark Zuckerberg, CEO

If we know that Instagram has one billion monthly active users, 500 million of which use Stories, this statement confirms that more than 500 million are using WhatsApp Status, its version of Stories/disappearing messaging. WhatsApp already has a larger user base than Instagram, with 1.5 billion monthly active users, so the opportunity is sizable.

Facebook has so far not attempted to fully monetize WhatsApp — even its WhatsApp Business is free. When asked about serving Stories ads to WhatsApp Status, Sandberg said such ads are not available and that, “We’re very focused for WhatsApp on the consumer experience.”

We can likely expect Facebook to continue to build trust and user habits in WhatsApp for at least 6-12 months before it begins to monetize it more. Additionally, Facebook’s long-term roadmap involves fusing Messenger, Instagram Direct Messaging, and WhatsApp, so Messenger-style ads are likely to show up at that point, if not before.

A Difficult Format
“If we made it easier for our advertisers to place the ad, to make sure they understood the measurement they were having, and also make sure the ads format worked, businesses would move more quickly.” – Sheryl Sandberg, COO

This statement reveals that advertisers didn’t quite understand the story format or were frustrated by the need to make additional creative sizes. Vertical video is a unique and difficult format, even before you add in text, stickers, polls, and other native adornments typically seen in Stories. Not all of those frills work in ads, however.

Sandberg went on to explain that the company created “automatic placements” that allowed advertisers to directly place ads formatted for the feed into Instagram Stories. This allowed them to skip making new content just for Stories, and to use the same creative for feed and Story ads. In Q2, Facebook rolled out Dynamic Story Ads, which feature products you’ve previously viewed in an ecommerce store or app. Note that this format also doesn’t require custom creative, thus easing the lift for advertisers. While many of the native features of Instagram Stories, like hashtags, aren’t available in Stories, they recently added Polls, where users can choose between two custom choices.

We can expect to see Facebook improve Story ads in two ways: easy creative to appease advertisers, and matching more of the native functionality to engage users.

The Geography Game
“The year-over-year decline in average price per ad reflects an ongoing mix shift toward Stories ads and geographies that monetize at [a] lower rate.” – David Wehner, CFO

The hidden key to this statement is “geographies that monetize at a lower rate.” Ad buyers all know that targeting developing countries leads to lower costs per impression, click, or acquisition. These low-cost international users are best if you are targeting that country specifically or if you are simply hungry for a high follower count. Otherwise, you will almost always get lower engagement, and certainly lower conversions, from users in developing countries. Imagine running Instagram Stories ads without geo-targeting as an ecommerce provider — you would reach countries where users don’t speak your language or your product is unavailable. In fact, if you are not specific, Facebook/Instagram will automatically serve your ads to those “countries that monetize at a lower rate.”

The Future
“It’s also the case that we have a lot of inventory on [Stories]. And so there’s a real benefit right now in early adopters that pricing is a very attractive. So we think the mix to Stories is a big opportunity for us and advertisers over time. I’ll say one more thing, which is that Stories don’t monetize right now at the same rate as News Feed. We are optimistic about the growth over the long run, but we are, as always, very prudent and careful on the consumer experience.”– Sheryl Sandberg, COO

Instagram Story Ads will be a smart investment for advertisers during the next year, while demand catches up with supply. High-value, US-based audiences may already be seeing some competition, but there’s 500 million users that Instagram has yet to hook on Stories.

Advertisers can always benefit from being ahead of the curve, so be on the lookout for new Story ad formats and ads in WhatsApp.

If you learned something about the expansive, ever-changing world of social media today, you will certainly benefit from reading our latest report, The Ascent of the Social TV Engager: Understanding the Interplay Between TV & Social Media. Lauren Kozak, the author of the report and this article, is our Senior Advisor on Social Media, Analytics, and User Behavior. She has previously held positions for the Los Angeles Times, Tribune Publishing, and Britney Spears.

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