Facebook Watch may see upside as passive video viewing declines on Facebook

Watch
Facebook CEO Mark Zuckerberg said during his company’s earnings call Wednesday that part of the growth strategy for Watch is building in social features that allow audiences to better connect with content and other users. (Facebook)

As Facebook experiences a decline in passive video viewing on its platform, the company’s still-fledgling Watch tab could be in line for an upside.

As Facebook has made changes to its platform in hopes of “encouraging meaningful interaction,” it has seen passive consumption of video—or just watching videos that appear in users’ timelines—decline. Facebook has said that passive interactions with its platform are not good and that it is trying to encourage more active use of Facebook features by consumers.

Part of that active-use strategy is Facebook’s Watch tab, a dedicated hub for video content, both user-generated and professionally produced by various publishers and media partners.

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Facebook CEO Mark Zuckerberg said during his company’s earnings call Wednesday that part of the growth strategy for Watch is building in social features that allow audiences to better connect with content and other users. Specifically, he mentioned Watch Party, a new feature that lets groups of users watch videos at the same time and interact.

RELATED: Facebook unveils YouTube competitor Watch with shows from A&E, MLB, Univision and others

“So what we're seeing so far is that a bunch of the content that has come onto Watch is good and is working and people watch it. We're continuing to treat the product to emphasize that kind of content more while building more of these social features,” said Zuckerberg, according to a Seeking Alpha transcript. “I'd say it's still pretty early overall in terms of the growth of this, but it's clearly an area that's important where I think we have something unique that we're going to bring to make this successful.”

Jefferies analyst Brent Thill said Watch is among the several continued growth opportunities for Facebook.

“Our channel checks of both users and advertisers continue to point to upside for Instagram & core Facebook. Instagram has upside from both user growth, ad load growth, and increasing advertisers on the platform (2MM vs 6MM on Facebook). We see upside from Watch tab continuing to grow as well as Messenger & WhatsApp monetization in out years,” Thill wrote in a research note.

MoffettNathanson analyst Michael Nathanson said that, while Facebook’s $12 billion in quarterly revenue (most of which came from advertising) was ahead of estimates, content investment for initiatives like Watch could keep impacting earnings.

“Adjusted EBITDA of $7.35 billion was 13% ahead of our estimate of $6.51 billion, driven by margin improvement slightly offset by higher cost of revenue due to video content investment and the move from net to gross accounting for Instant Articles,” Nathanson wrote in a research note.

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