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Facebook’s mobile surprise allays growth fears

Mobile ad revenue totalled roughly $150 mn, up from an estimated $40-50 mn in the second quarter
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First Published: Wed, Oct 24 2012. 02 13 AM IST
Facebook CEO Mark Zuckerberg said mobile was the “most misunderstood aspect” of the company and took issue with the “myth” that Facebook could not earn money on mobile.  Photo: AFP
Facebook CEO Mark Zuckerberg said mobile was the “most misunderstood aspect” of the company and took issue with the “myth” that Facebook could not earn money on mobile. Photo: AFP
Updated: Wed, Oct 24 2012. 08 08 AM IST
San Francisco: Facebook Inc. grew mobile advertising revenue several times in the third quarter, a faster-than-expected pace that helped drive shares in the world’s largest social network nearly 13% higher.
Facebook said on Tuesday that it now gets 14% of its advertising revenue from mobile ads, helping to reassure investors that the social network is beginning to figure out how to earn money off smartphone and tablet users.
Mobile ad revenues totalled roughly $150 million, up from an estimated $40 million to $50 million in the second quarter and almost nothing in the first.
“This certainly dispels the most bearish view, that Facebook couldn’t monetize people on phones or tablets,” said Colin Sebastian, an analyst with Robert Baird and Co.
“In about a six-month period, they’ve actually started to generate decent revenues form their mobile applications,” Sebastian added, though he said Facebook still needs to show that its mobile ads can command the same rates as its traditional ads and that they can deliver results for marketers.
Mobile advertising has been among the key investor concerns hanging over Facebook, helping slash more than $40 billion off its market value since its May initial public offering (IPO). As its users increasingly access the social network with their smartphones, Facebook has struggled to transition its business to mobile devices.
The mobile ads helped reignite Facebook’s overall advertising business during the third quarter, following several consecutive quarters of slowing revenue growth that raised questions about Facebook’s long-term prospects.
Advertising revenue increased 36% to $1.09 billion, up from 28% growth in the second quarter. But revenue from its payments and other businesses increased just 13% to $176 million.
Mark Zuckerberg, the 28-year-old chief executive who created Facebook in his Harvard dorm room, said mobile was the “most misunderstood aspect” of the company and took issue with the “myth” that Facebook could not earn money on mobile.
“Over the long run, we’re going to see more monetization per time spent on mobile than on desktop,” Zuckerberg said on a conference call with analysts on Tuesday.
The company’s shares leapt nearly 13% to $21.97 in after-hours trading on Tuesday.
Facebook said it had crossed the 1 billion threshold for monthly active users by 30 September, of which 604 million were mobile users, a gain of 61% from a year earlier.
The shift to mobile has challenged many of the Web industry’s top companies. Google Inc. is the No.1 provider of smartphone software with its Android operating system. But the company missed Wall Street’s revenue targets in the third quarter, with some analysts blaming the shortfall on its increasing reliance on lower-priced mobile ads.
Social game maker Zynga Inc., which announced layoffs of 5% of its staff on Tuesday, has suffered as it struggles to translate its hit games to mobile devices and as the use of its games on Facebook’s service declines.
Not pleased with gaming
Zynga’s woes were visible in Facebook’s results, with Facebook’s payments revenue from the maker of Farmville down 20% year-on-year.
Zuckerberg said he was not pleased with revenue from gaming, but said that beyond Zynga—which accounts for 7% of Facebook’s total revenue—the situation was brighter.
“The interesting thing is that the rest of the games ecosystem has actually been growing. Our monthly payments revenue from the rest of the ecosystem increased 40% over the past year, since payments has been adopted,” he said.
Zuckerberg also said Instagram, the photo-sharing app that Facebook acquired for roughly $750 million this year, now has 100 million users, up from 27 million when Facebook bought the company.
Facebook posted a net loss of $59 million or 2 cents a share in the three months ended 30 September after booking a big provision for income taxes. Excluding share-based compensation and income tax adjustments, it earned 12 cents a share, a penny higher than the average analyst expectation.
Facebook Finance Chief David Ebersman said the company would continue to invest aggressively during the fourth quarter, though the company did not provide a specific financial outlook, in keeping with its previous practice.
Ebersman said that the total number of ads that Facebook delivered in the third quarter increased 27% year-on-year and that the average price per ad increased 7%.
Facebook’s third-quarter mobile revenue marked a big jump from the second quarter, when Facebook said that it was generating more than $1 million a day from a new class of ads that appear in users’ newsfeeds. Facebook said that roughly half of that revenue was from mobile ads, suggesting that mobile advertising revenue totalled $45 million in the second quarter.
Stifel Nicolaus analyst Jordan Rohan said that Facebook’s mobile ad revenue was impressive, but said that Facebook needs to proceed carefully so as not to damage the user experience by overloading its service with too many ads.
And he said that Facebook’s desktop PC advertising business appeared to have shrunk by about $40 million from the second quarter. Rohan said he would rather see the desktop ad business remain stable as the mobile ad business grows.
Facebook’s third quarter revenue of $1.26 billion was a hair above the average analyst expectation of $1.23 billion, according to Thomson Reuters.
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First Published: Wed, Oct 24 2012. 02 13 AM IST
More Topics: Facebook | earnings | FB | Q3 |