Facebook Q3 2020
investor.fb.com
investor.fb.com
I know people on HN hate Facebook. But it is truly quite amazing looking at those numbers.
Think of India's internet as America's internet from 2014. Everybody loves facebook here, there are 0 privacy laws.
75%? 80%?
So Yes, roughly 77%.
And growing.
Does Facebook specify what a "user" is?
Is just it someone with a Facebook/IG/WhatsApp/etc account who logs in?
Does it include someone with no Facebook account who clicks on a link to a page on Facebook?
Does it include someone who visits another web site that has a Facebook tracker on it?
My understanding was that you are counted as an MAP if you log into FB on any device, or use fb-login for at least one service in that month (although they may have changed it).
Revenue up by 22 % to $ 21.4 billion
Profits up by 29 % to $ 7.8 billion
Facebook Daily active users up by 12 % to 1.8 billion
Facebook Monthly active users up by 12 % to 2.7 billion
2.5 billion users using one of the apps(FB/IG/WhatsApp) daily.
3.2 billion users using one of the apps monthly up by 14 % for the year
Headcount grew by 32 % to 56k
$55 billion in cash reserves
More seriously I wonder what constitutes an active user. Scrolling for N minutes ? liking ? posting ? any combination of those ?
- 12% increase YOY for both DAU and MAU
Yet again, monster quarter and reports of FB's death have been proven to be premature.
Would be curious to understand more how much ROI they're seeing on hardware investments, like in Portal + Occulus.
It’ll be negative, both Oculus and Portal are sold at a significant loss. Of course, FB’s perspective is that the positive ROI won’t come until further down the line and it’s necessary to avoid the situation they found themselves in on mobile.
1.8 Billion Active Users on Facebook in Q3 of 2020
Every user in the US brings gives Facebook about $40 in advertising revenue every quarter
Facebook made $21 BILLION dollars in advertising, just in Q3 of 2020
Facebook has an effective tax rate of between 4% (in Q3 of 2020) and 20% in Q4 of 2019.
You’re worth a bit less than $160/year to Facebook in advertising revenue. They made 70 Billion dollars last year, and have made almost 60B this year already (82% of what they made in 19). They are taxed in the low double digits.
My questions to you: - Did you get $160 worth of value out of Facebook? - What’s your annual tax rate?
My guess is it’s No to the first question and a lot more than 4% to the second.
Facebook employees and shareholders also pay tax on money they take out of Facebook.
The optics are terrible, agreed on that.
Regarding your first question, its not about how much value I get out of Facebook, since I'm not paying $160 for it, advertisers are paying for the ability to reach people.
They aren’t unique in this sense but it’s just loophole after loophole and is the kind of thing that is at this point a textbook example of failed corporate/ social responsibility.
$13/month for WhatsApp is definitely worth it (if you take out the fact that its part of Facebook)
Have I been influenced to spend an additional $160? I’m highly doubtful but who knows!
Corporations don't exist, so they can't "pay" for the tax. With a corporate income tax, the incidence is out of policymakers' control and some percentage will fall on consumers. Just tax who you want to tax.
Because otherwise they make great tax dodges.
> All of that money will eventually be income for an actual person (employees, shareholders) who will be taxed on it, most likely at a rate above 24%.
No, it doesn't. The stuff that becomes employee income mostly isn't taxed as corporate income (its a deductible business expense). If it is distribute as dividends, its taxable to the recipient, but certainly that doesn't happen with all after tax corporate profits. Its very common for most investor returns to come as capital gains with the money retained/reinvested in the business.
It’s like claiming a house is a tax dodge because the owner isn’t taxed every quarter in the increase in value. In both cases the owner gets taxed when gains are realized.
Corporate income is mostly a way to get incremental cash for govt. But the tax comes gets paid by stocks, effectively taxing pensions, 401ks, etc., without people thinking about it.
As a way to check it, there’s academic papers demonstrating every dollar held by a company is matched in market cap - company loses X in cash, market cap drops X.
So the company isn’t really paying - it’s shareholders that pay. They ultimately lost the value.
Corporate taxes ensure this tax is actually realised on a semiregular basis.
Creating more jobs, total assholes really.
I'm sorry, but how do you square that with the legal rights via judicial precedence they have, like those described in https://en.wikipedia.org/wiki/Corporate_personhood ? How do you square it with the plain language of the USC on the matter (https://www.law.cornell.edu/uscode/text/1/1) ?
We pretend that the paper is a person in lots of contexts because it's a convenient fiction. But in this example, the paper very clearly isn't paying income tax.
Unfortunately, they do as far as the law is concerned. They have a right to own property - in perpetuity, which makes it an even more powerful right than flesh-and-blood humans have. They have a right to bring lawsuits. They have a right to influence our political process, thanks to Citizens United. They serve as an impenetrable shield between those owners and liability, and (thanks to those property rights) to a large extent taxation as well. Very little of this should be the case, but it is, and because corporations have this very substantial separate existence they should also be subject to tax.
There’d be no mortgages, no college loans, no car loans, and zero growth. The LLC is credited with allowing modern economies to happen since for the first time people were only liable for the portion invested, not their entire life assets.
Those countries slow to take it up demonstrably lagged economically.
Go read on the history of the LLC to see how it revolutionized the world.
> When you can lose all your possessions if an investment you made fails
This is not about an investment failure in the sense of not getting the expected returns. It's about incurred liability. Why should individuals not in general be liable for the choices they make? Ever hear of moral hazard? Any exemptions, as with corporations in their original form, should be very limited and balanced by some public good.
> There’d be no mortgages, no college loans, no car loans, and zero growth.
That is simply not true. It's your claim, so you provide some evidence. Then I'll show what's wrong with it. Even without limited liability, those with assets will assume risks if the potential returns are commensurate. Always have, always will.
To quote: "You're playing an excluded middle"
Investor invests in building. Lightning burns it down. Should that investor be legally liable for their entire worth, or just the value invested?
There is some medium ground between being liable without bound and not having any liability whatsoever. Limited Liability Corporations are just that - you can be held liable beyond the LLC if you do illegal things. But the limitation is to be liable for only the assets relevant to the business. This seems perfectly like a reasonable middle ground.
And it's listed often as one of the best inventions enabling a modern economy [2]."To the economist the concept is essential, for without limited liability capital acquisition would be difficult indeed." [3] The historical evidence is that limited liability corporations enabled using excess capital far more efficiently than previously, which is why pretty much every country in the world has adopted it. It was clear early on that those countries not adopting it were falling behind economically.
>Even without limited liability, those with assets will assume risks if the potential returns are commensurate. Always have, always will.
Before limited liability, unlimited liability was the norm. If a merchant invested some of his profits in a ship, and the ship sank, then those with cargo on the ship could sue the merchant for all the merchant was worth, far surpassing the value the cargo was worth. This disincentivized merchants investing.
So yes, investors invest commensurate with the risk. If the risk goes up, they invest less. This was the norm. Excess capital was not being used for fear of losing not only that capital but all capital.
The Dutch invented limited liability in the 1600s in order to tap this unused capital. " The innovation in the case of the VOC was that the liability of not just the participanten but also of the bewindhebbers was limited to the paid-in capital (usually, bewindhebbers had unlimited liability). The VOC therefore was a limited liability company" [1]
This proved so successful economically that all neighboring nations adopted it soon thereafter, enabling a boom in shipping.
Now, back to mortgages, etc. Mortgages are lent by banks (more or less). Before limited liability, the bank was owned by one or more people, and they were liable for any business deals they got involved in that went wrong, and not just for the amount invested in the business, but for all their assets. If they lent a mortgage, and something was wrong, even by acts of God, then the bank and any shareholders could be sued for everything - their entire set of assets, their houses, and even their families houses.
If you don't see how this disincentivises investment or risk taking, then I don't know how else to explain it. I'm far more likely to invest $100 if I know I'll at most lost $100. If I'm possibly liable for $1,000,000, I'm not likely to ever invest that $100.
> Even without limited liability, those with assets will assume risks if the potential returns are commensurate. Always have, always will.
We agree on that. When the risks are tremendous, there will be less investment. And this is historical fact.
[1] https://en.wikipedia.org/wiki/Dutch_East_India_Company
[2] https://www.bbc.com/news/business-40674240
[3] https://www.bus.umich.edu/KresgeLibrary/resources/abla/abld_...
False example. The owner of a warehouse (clearly what you mean even though you fail to specify) would in general not have been held liable for the value of others' goods that were lost. As no less than Rothbard pointed out, contracts alone could have excluded that liability, with no need for a corporate structure. Or the owner and/or investors could have purchased insurance, which also predates corporate structure by centuries. The introduction of a new legal entity, which has since been expanded to be equal (or superior to) natural persons under law, was unnecessary to secure the benefits of investment.
> Before limited liability, unlimited liability was the norm. If a merchant invested some of his profits in a ship, and the ship sank, then those with cargo on the ship could sue the merchant for all the merchant was worth, far surpassing the value the cargo was worth.
You just happened to pick an example that has been used to show why the corporate form was unnecessary.
"The corporate form emerged from economic arrangements that mirrored the concept of limited liability offered by modern corporations. One such arrangement was the commenda, a system developed in Eleventh Century Italy ... This arrangement allowed the passive partner to limit his or her liability of their investment" Robert W. Hillman, Limited Liability in Historical Perspective
People were already investing, without corporations, in the eleventh century. As I said before, your claim was untrue.
> If I'm possibly liable for $1,000,000, I'm not likely to ever invest that $100.
That's why you would write a limitation into any contracts related to that investment, and/or buy insurance. Either could be overridden by acts of gross negligence (an illegal clause in a contract is void and insurance contracts have similar exceptions). If you're negligent or malicious, or authorize others to be negligent or malicious on your behalf, you damn well should be liable for a proportional share of damages which could exceed the value of investments. Hint: don't do things that harm other people and you'll have nothing to worry about. Did you look up "moral hazard" yet?
Yes, they did. But investing is not a binary, all or none event. You continually fail to address that less risk means more investment. You fail to address the fact, as quoted above, “ To the economist the concept is essential, for without limited liability capital acquisition would be difficult indeed.”
For someone claiming I fail to see a middle ground, you’re doing it repeatedly.
History shows limited liability spurred economic growth, which is why it’s used in likely every of the 200 plus countries. It’s why economists often list it as one of the greatest economic inventions of all time.
As to contracts, a LLC is a contract. As to gross negligence, it violates protections of the LLC. The contracts you argue for are a LLC.
Do you claim investment would be at the same level without limited liability?
Not even all forms of limited liability are equal, let alone all forms of corporate structure of which limited liability is only a part. To argue that all of the extensions to corporate personhood over the last 200 years are justified because of economic growth over the same time is not only to conflate different things but to confuse correlation with causation. That's where this discussion started - not with limited liability alone, but with corporate personhood in general, so I guess we can add the fallacy of composition to your trifecta. I refuse to engage with more such sophistry.
That's a good idea, since your contract argument simply reinvented limited liability. Also your black and white thinking is off: for example, I never argued about "all extensions are justified by economic growth," nor have I continually reduced positions to binary when they're clearly not. I think you're arguing against what you want me to write instead of what I've actually written.
https://www.milkenreview.org/articles/the-progressive-case-f...
https://www.theatlantic.com/business/archive/2010/10/why-we-...
It's more efficient to tax land, gas, and soda. See Pigovian taxation for more details: https://en.wikipedia.org/wiki/Pigovian_tax
I've spend hundreds of hours of my life reading the section 482 regs. Multinational companies need to comply with these. Never really understood the vilification of companies that are following the rules.
Your statement is based on a false axiom. Much of the ire is at companies not following the rules. It's just really really hard to untangle all of the shells and subsidiaries and internal transfers of a modern medium-or-larger corporation, so even when they do get caught they end up paying pennies on the dollar of what they owe. Or nothing. Did you hear the news this week about a certain Mr. Trump, who paid zero taxes on hundreds of millions of dollars of forgiven loans (i.e. gifts)?
But hey, let's pretend for the sake of argument everyone does play by the rules. Does that make everything OK? Of course not. Those rules are a sociopolitical construct, and do you know who has an outsize influence on what those rules are? Why, the very same corporate "persons" they apply to! From lobbying to regulatory capture to the "revolving door" to outright graft, corporations use their assets to secure laws more favorable to them than any of us mere humans could get. And they make a great return on that investment. Several hundred percent minimum IIRC. Most of it's legal (true graft is only a tiny fraction of it) but that doesn't make it OK.
Now imagine the process of assessing and collecting taxes from 93,000 entities, including enforcing penalties for people who inadequately report or pay.
They're going to dodge it anyway so all you're doing is creating jobs in other jurisdictions by attempting to tax them.
"Our third quarter 2020 effective tax rate was 4%, which reflects a one-time income tax benefit of $913 million related to the effects of a tax election to capitalize and amortize certain research and development expenses for U.S. income tax purposes.Excluding this tax benefit, our effective tax rate would have been 11 percentage points higher and our diluted EPS would havebeen $0.31 lower."
The government incentivizes transactions, when you don't conduct enough transactions you pay the government instead.
The people decided that taxes were too hard to comprehend, which isnt true for all of us, and vilify anyone who does comprehend. The collective understanding and reading comprehension is so low that they cant even effectively change the law, getting their representatives to just tax people that earn the same way they do more. Congratulations you taxed the most effective wage workers more you did it!
Its just another perspective on reality that also happens to be more accurate and effective.
I think there are greater obstacles for the collective of ordinary people being able to effectively change the law than reading comprehension, and one of those things is the nearly limitless capacity of large corporations to lobby government. The more they lobby, the less they pay, the more they earn, the more they lobby, the less they pay, the more they earn, the more they lobby, the less they pay, the more they earn.
You could add into that cycle "...the less money is available to fund the government, the less money is available for education, the dumber the people get, the less capable they become at managing their own government, etc...". Never minding of course that schools are largely funded by property taxes (stupid IMO), it still affects the overall availability of public funding.
Corporations should pay more because the tax code should be written to require it, not out of dumbness or virtuousness. The cycle of wealth inequality must be broken, and it's not a simple thing to actually implement a solution.
The things you said also happen
Governments also need a new revenue source.
100 years of passive income taxation while they too borrow against future revenue growth and we are to act like it’s their only option?
None of the ideology matters if it can’t budget and where we are now, no taxation will fix its budget unless it resorts to full on expropriation of property
The government collects trillions of dollars a year in taxes as it is. A significant percentage increase to the level of taxation against top earners would make a huge difference, and it is difficult to fathom what operation the government could run to remotely approach that level of increased revenue generation. What do you have in mind?
Something is going to have to get nationalized, big bad word oh noes
You see nationalization of industry as a pathway to revenue growth? I guess it makes sense, but somehow I always think about industries like healthcare being nationalized as a means of providing service, which is likely to cost the government more money
What industry would be profitable and appropriate for nationalization?
They can have positive operating profits, but tax losses. For example, Congress recently (3-4 years ago?) changed the tax code to allow companies to expense, instead of amortize, capital equipment.
I'm fairly confident FB would be making R&D investments regardless of the reward from the tax code. But for change in behavior due to the tax code, the tax credit is a windfall.
Additionally, that money is being taxed in the end via income tax at a comparable rate.
> According to this data, in 2017, the top 1 percent of taxpayers paid an average federal income tax rate of 26.76 percent. The bottom 99 percent, or all the rest of the taxpayers, paid an average rate of 11.4 percent. If we look at just the bottom 50 percent, the average rate paid by these taxpayers is even lower, at 4 percent.
> At the very top end of the AGI distribution, we see average rates decrease slightly, but remain significantly higher than the average rates paid by those lower on the income distribution: 25 percent for the top 0.01 percent and 24 percent for the top 0.001 percent.
https://taxfoundation.org/average-federal-income-tax-rates-2....
Does federal income tax include or not include FICA? Presumably not. In which case the bottom 90%+ are paying some number of 10-15% more per year. Then the top few percent are paying less extra until you get to the top 1% and beyond where they are paying a fraction extra.
That tax alone completely invalidates the article and makes it seem incredibly biased.
Calculating the actual rate is almost impossible as you'd need to factor in property taxes, gasoline taxes, sales taxes, costs involved in vehicle registration and other permits and so on.
Even then people disagree on what a is a tax and what isn't and argue that some of those things shouldn't be included. For example, the individual mandate in the affordable care act levied what was called a fine to people who did not have health insurance the previous year (Individual Shared Responsibility Payment) but in real terms this wasn't very different than a tax and was collected by the IRS.
Similarly, some would claim Social Security and Medicare payments are not taxes due to the fact that those programs directly provide services to the party who paid into them. This is also the justification for phasing them out over certain income thresholds as after you have contributed a certain amount to the program you are "paid up" as it were.
My point is in order to discuss this first we must agree on what constitutes a tax in the first place and that is much easier said than done. If we take the all non voluntary payments to any government and their second order effects route we are probably talking about a rate of over 50% on average, however under that same definition Facebook is paying much more than 4%.
a. Both DAU and MAU continue to grow. FB now has 2.7B MAU and 1.8B DAU. Combining across all their products (WhatsApp, Insta..) the DAP is 2.54B
b. Ads is the source of income and FB makes $39.6 per user in the US&CA and $7.89 avg. world wide
c. Operating expenses are kind of stabilizing which is a good thing for FB.
The presentation is a good easy read. I like how FB define the metrics like DAP etc.
Incredible, a third of the world uses a Zuckerburg product every single day.
Serious question. I'm also in the boat of I'm usually in a position to read something, far less commonly in a position to listen to something.
https://s21.q4cdn.com/399680738/files/doc_financials/2020/q3...
Edited to correct the link... I blame my mistake on how the design of their IR page totally guided my eye to the top of the list of "past events"... https://investor.fb.com/investor-events/default.aspx