Facebook Tops Expectations On Strong Mobile Gains

Thanks again to surging mobile ad sales, Facebook on Thursday reported revenue in the third quarter climbed 60% to $2.02 billion.
The social network’s mobile ad business accounted for half (49%)% of overall ad sales of $1.8 billion in the period, up from 41% in the prior quarter, and 30% in the first quarter.
Facebook had adjusted net income of $621 million or 25 cents a share compared to $311million, or 12 cents per share, a year ago.

Wall Street analysts, on average, had expected Facebook to post earnings of 18 cents a share on revenue of $1.89 billion.

"The strong results we achieved this quarter show that we're prepared for the next phase of our company, as we work to bring the next 5 billion people online and into the knowledge economy,” said Facebook CEO Mark Zuckerberg in the earnings release.

Facebook’s monthly active users (MAUs) as of September increased to 1.19 billion, up 18% from a year ago, but only slightly from 1.15 million in the second quarter. The number of mobile MAUs continued to grow much faster, at 45% to 874 million, underscoring why Facebook has shifted its focus to mobile advertising over the last year and a half.

Daily active users (DAUs)—the most avid Facebook members--overall increased 25% to 728 million, while mobile DAUs came in at 507 million.Further, a full quarter of Facebook’s monthly users—254 million—are now mobile only.

During the earnings conference call, Facebook COO Sheryl Sandberg also noted Instagram totals more mobile minutes than YouTube, Pandora, Twitter, AOL, LinkedIn and Snapchat combined. But CFO David Ebersman conceded Facebook saw a decrease in daily use among teens, though U.S. teen use overall was stable since last quarter.
Facebook has been on the defensive about teen use in recent months, with reports emerging that the sought-after demo has been migrating away from the site to other social properties, including Twitter. The admission that teens’ daily use dropped off in the quarter could signal a growing issue for Facebook as it competes with a host of up-and-coming rivals.

Facebook’s $1.8 billion in advertising sales, which accounted for 89% of total revenue, surged 66% in the quarter—higher than the 61% growth in the second quarter. Payments and other fees contributed $218 million, or 11% of overall sales. That portion of Facebook’s business continues to shrink with the declining fortunes of social games maker Zynga.

While advertising is essentially Facebook’s only revenue stream, the company has been diversifying its ad business since last year. It has done that mainly by monetizing its huge mobile user base--placing ads in the news feed on devices, and rolling out app install ads promoting app downloads.

Facebook has also launched is own ad retargeting services, including the Facebook Exchange (FBX) and Custom Audiences in the last year, which have been mostly well received so far. Video is expected to be the next major ad category will push into, though its launch of TV-style spots in the news feed has already been delayed several times.

The latest reports suggest Facebook won’t introduce video ads—said to carry a minimum buy of $1 million—to be rolled out until next year as the company continues refining the format so as not to alienate users with in-your-face commercials.

Instagram will add another revenue stream as the photo-sharing service began rolling out image- and video-based advertising this month from brands including Levi’s, Ben & Jerry’s and Macy’s. Facebook began allowing Instagram users, including marketers, to post 15-second videos to their feeds in June.

During the conference call, Zuckerberg said the company has taken a careful approach to adding to video to Instagram and that the initial reaction had been positive. But h he didn’t offer additional insight on when it might introduce video advertising on Facebook itself. 

Facebook shares were initially up more than 8% to $53.25 in after-hours trading following the company’s earnings announcement. But news of the decline in teen usage, along with comments suggesting Facebook wouldn’t increase the ad load in the news feed much going forward, sent shares falling below the Thursday closing price of $49.01.
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