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Mark Zuckerberg says virtual reality is the obvious next step for Facebook

Video is Facebook's best new business, and Oculus will only amplify that trend

Ian Gavan/Getty Images

Facebook has another quarter in the books, and the company's business continues to boom. Its revenues rose roughly 40 percent year over year, to $4.04 billion. But its net income declined compared to last year, declining from $791 million to $719 million. Its operating margins also tumbled as Facebook's spending soared. This measure of profitability slumped from 48 percent this time a year ago to 31 percent this quarter. On today's earnings call, chief financial officer David Wehner said that the company had added a near record number of new employees this quarter, most in research and development, which helps explain the change in margins. R&D spending is focused on fun things like drones and lasers that beam down internet access and of course, virtual reality.

When asked what he thought the primary applications of Oculus VR headset might be, founder and CEO Mark Zuckerberg said, "The reason we’re excited in this space is the continued progression of people getting richer and richer ways to share what’s on their mind. Ten years ago it was text. Now it’s mostly visual and photos, then primarily video and we’re seeing huge growth there, but that is not the end of the line. Immersive 3D content is the obvious next thing after video." He says that more interactive social applications will arrive once we have robust technology in place to experience this new kind of video.

Not surprisingly, given its massive size, Facebook's user growth is starting to slow. Its daily active user base was up to 968 million, a 17 percent increase over last year, when the user base grew at 19 percent. Growth in mobile daily active users fell by 10 percent year over year. Its monthly active user base now stands at a whopping 1.49 billion people. Zuckerberg said on the earnings call that the average user was spending more time with the service on a daily basis.

Video advertising was one of the big drivers of Facebook's revenue growth. Chief operating officer Sheryl Sandberg said that "Our video demand is very deep. And we can do targeting in a way that is really unique. We can target millennials who like spicy food, which is really specific." Snake people love their salsa.

Zuckerberg also noted that there were no plans to immediately start cramming ads into Messenger or WhatsApp. "The playbook we’re going to run with Messenger and WhatsApp will be similar to what we did with Facebook and Newsfeed," he said, noting that they ignored suggestions for years to simply cram in banner ads. "We’d ask for some patience on this to do it correctly." Let's hope they take a similar tack with Oculus. The possibilities for targeting Wendy's new Southwest chicken sandwich through a virtual reality headset boggle the mind.