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24th October 2012

In The News: Facebook Q3 Results Show Growth In Mobile Ads

This article was originally authored by Brian Deagon for Investors Business Daily. Facebook (FB) late Tuesday reported third-quarter earnings that slightly beat estimates, but perhaps the best news was that its mobile advertising business is gaining traction. Facebook’s of $1.26 billion edged estimates for $1.22 billion. Sales were up 32% year over year, matching the social networking firm’s Q2 growth. Facebook earned 12 cents a share, minus items, beating estimates by a penny and flat with a year ago. Facebook founder and CEO Mark Zuckerberg, here at an event last month, says mobile efforts are paying off. Revenue from advertising was $1.09 billion, above estimates, of which 14% came from mobile. “That is a good start for mobile, a good number,” said Wedge Partners analyst Martin Pyykkonen. Facebook did not disclose mobile ad revenue in the prior quarter, though Pyykkonen thinks it was in the low single digits. At the time, Facebook executives indicated mobile ad revenue momentum was building as it shifted more of its ad platforms over to mobile. “I want to dispel this myth that Facebook can’t make money on mobile,” Facebook CEO Mark Zuckerberg said on a conference call with analysts. “After six months of ramping mobile ads we’re just getting started with mobile product and monetization.” Zuckerberg started off the call discussing Facebook’s mobile prospects. “Long term, we should be able to monetize mobile better than desktop,” he said. “Mobile is a larger opportunity for us than most realize.” Facebook shares rallied 13% in after-hours trading. During the regular session, Facebook closed nearly 1% higher to 19.50. “No one is better positioned than Facebook to help businesses reach customers through mobile,” Facebook COO Sheryl Sandberg said on the call. “We only started making money from mobile in March. It’s early and will take time to generate scale, but the results say we are on the right track. In less than eight months, we have become one of the largest mobile platforms.” Meanwhile, Facebook’s Q3 revenue from payments and other fees, such as those from game firm Zynga (ZNGA) and other companies that use the Facebook platform, rose 13% to $176 million from a year ago. That was below estimates of about $190 million and down 9% from the second quarter. Total ad revenue rose 36% from the same quarter a year ago. In the second quarter, Facebook reported ad growth of 28%. “Ad revenue was solid and showed a re-acceleration,” Pyykkonen said. Facebook reported monthly active users of 1.01 billion, up 26% from a year ago and up 6% from the prior quarter. Excluding share-based compensation and other items, Facebook costs and expenses rose 57% to $737 million. That put pressure on operating margins, which fell to 42% from 51% a year ago. The rising expenses are partly the result of Facebook being aggressive in rolling out new plans for boosting user monetization. Facebook had a busy second quarter related to new ad products. Last month, it announced Facebook Gifts, which allows users to buy presents for friends for events like birthdays, weddings and graduations. Facebook gets a percentage of the sale. Early this month, Facebook began to test a service that allows users to promote a post to their friends. Users will pay a fee, reportedly around $7 per promoted post. Also, last month Facebook announced enhancements to its mobile ad network platform, called Facebook Exchange. With it, advertisers pay for improved targeting of ads they buy within non-Facebook mobile apps and sites. Facebook is reportedly working with ad exchange networks to deliver ads on Apple (AAPL) iOS and Google (GOOG) Android devices. “What we are seeing is the continued ability for ads to be increasingly displayed in prevalent places and at the right time in both desktop and mobile,” said Michael Scissons, CEO of Syncapse, a provider of social media management platforms. “While this will lead to continued and steady revenue growth, they are not breakthrough technologies. But it’s good enough for where they are right now.” Facebook’s model for the next several quarters will be driven by its ability to enable advertisers to target relevant ads on a large scale, especially to its most active users, Pyykkonen said. A challenge to Facebook is the increasing pace of competitors trying to draw in advertisers. It faces competition here from Google, Yahoo (YHOO), Yelp (YELP), Twitter and Pinterest, he said. Click here to read the article in full on Investors.com  

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