Mobile Powers Facebook's Skyrocketing Revs

Mobile growth powered Facebook to a 53% revenue gain in the second quarter as the company’s fortunes are increasingly tied to devices, not the desktop.

Facebook said 41% of its total advertising revenue of $1.6 billion in the quarter came from mobile -- up from 30% in the in the prior quarter -- and almost nothing at the start of last year. The social networking giant’s overall revenue increased to $1.81 billion from $1.18 billion in the year-earlier period.

It reported an adjusted profit of 19 cents a share compared to 12 cents a share a year ago.

Analysts, on average, project second-quarter revenue of $1.62 billion for the social networking giant -- up 37% from a year ago -- and earnings of 14 cents a share, up two cents. That compares to a 39% revenue gain in the first quarter. Profit was flat from a year earlier, at 12 cents a share.
 
"We've made good progress growing our community, deepening engagement and delivering strong financial results, especially on mobile," said Facebook CEO Mark Zuckerberg in an earnings statement. "The work we've done to make mobile the best Facebook experience is showing good results and provides us with a solid foundation for the future.”
 
Zuckerberg last year proclaimed that Facebook had become a mobile company, largely because of the dramatic surge in the number of people accessing the social network on mobile phones instead of PCs. That trend continues, with the number of monthly active mobile users on Facebook reaching 819 million as of June 30, up 51% from a year ago.
 
The company’s overall monthly active users hit 1.15 billion, up only 21% from a year earlier. Underscoring the mobile shift, the number of minutes that U.S. smartphone users spent on Facebook in this past quarter rose from 111.4 billion to 225.4 billion, according to a Wall Street Journal report Wednesday, citing comScore data.
 
Facebook has capitalized on the steep rise in mobile use by gradually ramping up advertising in the news feed in mobile, where ad rates now fetch higher prices than on the desktop. Mobile news feed ads commanded a CPM of $4.48 in the second quarter -- up 25% from the first quarter -- while the desktop rate fell 6% to $4.13, according to data released Tuesday by Facebook ad partner Spruce Media.
 
Mobile news feed ads also had a much higher click-through rate than that on the desktop, at 1.36% to 0.58%. Those rates were both down significantly from the prior quarter, but the desktop rate fell farther, down 46% compared to 27% in mobile.

The declining engagement rates could signal the novelty of news feed ads is wearing off for users. About one in five of the updates a Facebook user sees in their feed are now ads. Zuckerberg said the company aims to improve the quality of ads through increased competition among a growing number of marketers. 

CPMs for all Facebook ad formats across mobile and desktop in the quarter increased 21% to 47 cents, while click rates increased 13% to 0.11%. “In June, Facebook announced that it had 1 million active advertisers on its platform globally, and it would seem this competition is driving an increase in prices across almost all Facebook inventory,” the Spruce report stated.
 
Apart from mobile, Facebook in the second quarter also took steps to simplify the ad-buying process by cutting the number of ad formats it offers in half. Among other initiatives, the company also rolled out its upgraded search service widely following its January launch.

Advertisers and others are now eagerly anticipating Facebook’s expected introduction of video advertising in the second half of the year, which could accelerate the company’s revenue growth at buys reportedly set at $1 million a spot.

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Facebook executives didn’t add anything new on that topic Wednesday, with COO Sheryl Sandberg only saying during the conference call that the company was looking at building on the video feature it currently offers in Page Post ads.

Facebook-owned Instagram, however, did made a splash in the quarter by adding video capability to its photo-sharing app. That move further heightened expectations that video advertising won’t be far behind. For now, Zuckerberg said the focus for Instagram -- up to 130 million active users -- is still on growth. But eventually the goal is to build a business around the service, most likely through advertising.

Facebook, as usual, did not provide formal earnings guidance, but David Ebersmann, the company’s chief financial officer, said news feed ads will be the biggest driver of growth in the second half of the year. And as the company continues to invest in growth, it expects expenses to rise more quickly than revenue year-over-year.

Based on its strong second-quarter results, Facebook’s share price jumped almost 17% to $31.00 in after-hours trading after closing Wednesday at $26.51. 

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