Facebook Revenue Gains On Mobile Growth

Facebook on Tuesday reported that revenue rose 32% to $1.26 billion in the third quarter on the strength of growing mobile advertising sales. Ad revenue overall increased 36% to $1.09 billion, while mobile accounted for 14% of that total in the quarter.

The world’s largest social network posted net income of $311 million, or 12 cents a share on an adjusted basis.

The results slightly exceeded Wall Street analysts' consensus estimate of earnings of 11 cents a share on revenue of $1.23 billion in the third quarter. A year ago, Facebook reported a profit of 12 cents a share on revenue of $954 million.

With its stock trading at roughly half the level of its $38 IPO price, Facebook has been under pressure from investors to show that it has reignited revenue growth after a slowdown in the first half of the year compared to 2011. A particular concern has been the company’s ability to monetize its rapidly growing mobile audience, now equal to 600 million of its 1 billion users.

In the company’s conference call with analysts Tuesday, Facebook CEO Mark Zuckerberg said he “wanted to dispel the myth Facebook can’t make money on mobile.” He noted that Facebook derived $150 million, or 14%, of its ad revenue from mobile in the third quarter after beginning to monetize on devices only six months ago.

He also reiterated that he expects Facebook to make more from mobile on a time-spent basis than on the desktop over time because of the tight integration of ads into mobile and the continued expansion of the mobile audience globally

“We’re just getting started,” Zuckerberg assured. In the second quarter, Facebook said it generated about $1 million a day after launching Sponsored Story ads in the mobile newsfeed. Facebook CFO David Ebersmann said on the conference call that newsfeed ads overall are driving $4 million a day, with three-quarters coming from mobile.

Facebook COO Sheryl Sandberg emphasized that newsfeed ads overall have higher engagement rates than the banner ads that run on the right side of the page. They draw 8 times more interaction and have 10 times higher recall per impression.

In recent weeks and months, Facebook has ramped up the rollout of new mobile and other ad products to accelerate revenue growth. Those include the launch of Facebook Exchange for retargeting users based on their Web activity; Custom Audience ads to target existing customers on Facebook via email addresses and phone numbers; search advertising; and app install ads.

While many of these initiatives are still at an early stage, Ebersmann suggested they are already helping Facebook bolster ad revenue growth, which increased to 36% from 28% in the second quarter. Sandberg also highlighted initial results from some of the new ad programs:

Custom Audiences: Facebook often sees a match rate of over 50%, and sometimes as high as 95%, which it believes is much higher than industry norms.

Facebook Offers: About 100,000 Pages have created an Offer and approximately 30% of Offer claims are coming from mobile devices.

Promoted Posts: Since launching in Q2, Facebook has seen Promoted Posts from over 300,000 Pages, over 25% of which are new advertisers to the site.

She also said that Facebook Exchange, which came out of beta in September, has demonstrated performance in testing equal to or better than similar ad platforms. Facebook ad partner AdRoll said last month that clients' ads sold across 60 campaigns through the Exchange produced a return on investment of 16 times.

Things were not upbeat for Facebook’s payments business, which was up 13% from a year ago but down 9% from the prior quarter to $176 million. The quarterly decline largely stemmed from the recent woes at social games maker Zynga, which has typically generated most of Facebook’s payments revenue.

Zuckerberg said payments revenue from Zynga fell 20% in the quarter, but added that the dropoff was partly offset by a 40% growth in monthly revenue from the broader “games ecosystem” on Facebook. Zynga also contributed only 7% to Facebook’s total revenue -- down from 10% in the second quarter and 12% a year ago. 

Earlier today, Zynga confirmed it was laying off 5% of its workforce, or about 100 employees and closing facilities in Boston, Japan and the U.K. to reduce costs.

The company behind games like “FarmVille” and “Word with Friends” has already seen a series of top executives in recent months amid weak earnings and several disappointing game releases. Like Facebook, Zynga is also grappling with monetizing a user base that is migrating to mobile devices.

Facebook shares jumped 13% in after-hours trading to about $22 on Tuesday.


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