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The Most Important Number in Facebook's Impressive Quarterly Report

In this segment of the Motley Fool Money radio show, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Supernova and Rule Breakers' David Kretzmann consider the license to print money possessed by the world's biggest social media company. Not so long ago, tech industry watchers worried that Facebook (NASDAQ: FB) would have trouble transitioning its revenue model to a mobile world. It didn't. Now the skeptics have other concerns, but a look at its daily active user numbers should allay them for now. What's next for the company? The Fools discuss.

A full transcript follows the video.

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This video was recorded on July 28, 2017.

Chris Hill: We begin with the social network. Shares of Facebook hitting a new all-time high this week after second quarter profits came in higher than expected. Matty, they're just printing money over there at Facebook.

Matt Argersinger: They absolutely are, Chris. Advertising revenue up 47% to $9.2 billion. I mean, 47% growth rate, at this stage, it's just incredible. Remember, 87% of that now is mobile. As we talked about earlier this week, years ago, we said, "There's no way that Facebook is going to make money on mobile, they can't do it." And they are, and they're making most of their money on mobile these days. Operating profits were up 47% as well. The number to me, daily active users, up 17% to 1.3 billion. I know on a monthly active basis, they've crossed that 2 billion mark. But the daily active users to 1.3 billion is just incredible. I think that's where advertisers are probably going to see, that's what they're excited about, that's where they're getting be ROI from. So, just outstanding numbers for Facebook all around.

Hill: Yeah. David, you think about mobile advertising, and it's basically a duopoly between Alphabet's (NASDAQ: GOOG)(NASDAQ: GOOGL) Google and Facebook.

David Kretzmann: Yeah, they're the two giants in the space, and that will probably continue for quite some time. I think the biggest question mark with Facebook going forward is, what will they do about decelerating revenue with their core platform, which they've been warning for for over a year now, and obviously this quarter's results, as Matt pointed out, are still stellar. But at some point, they're going to need to find other areas to grow that top line, whether it's Instagram, which seems to be going well so far, but then, Messenger and WhatsApp both have bigger question marks on them as far as monetization.

Jason Moser: Think about Facebook's position. If you're an advertiser, you're literally an idiot if you're not spending money on that platform. That's such a great competitive advantage right there. And that's really Google and Facebook in a nutshell, right? Those are the two places where the eyeballs are going. I think furthermore, when you look at what Facebook did with Instagram, and we talk about this every quarter, that Instagram acquisition was obviously sheer genius in hindsight. On the flip side of that coin, I'm not necessarily convinced that WhatsApp or Messenger are going to bear the same kind of fruit. We're seeing, they're getting the ball rolling and putting some ads in Messenger. WhatsApp doesn't sound like it's terribly unique, there are other imitators out there. And that was a very, very big chunk of change they dropped on WhatsApp, too. At the end of the day, it's probably not going to matter anyway, and that's really the beauty of this position, where size and financial resources are a competitive advantage. I'm going to be very interested to see over the course of the next 5-10 years if Messenger and WhatsApp bear the same fruit that Facebook and now Instagram are currently bearing.

Argersinger: Yeah. I think in the near term, it's all about video right now. They're going to try to have a lot of the same success that YouTube has been having over at Alphabet. That's where the big investment dollars go. But to David's point, Messenger and WhatsApp, it's going to be key for them to try to monetize those. And the idea of putting ads in front of people's texts on their phone, it seems like a very hard place to work. But we've seen it work in China and other places, so that's probably Facebook's next move.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill has no position in any stocks mentioned. David Kretzmann owns shares of Alphabet (C shares) and Facebook. Jason Moser has no position in any stocks mentioned. Matthew Argersinger owns shares of Alphabet (C shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool has a disclosure policy.