Bloomberg News

Facebook Sales Top Estimates as Companies Warm to Mobile Ads

October 23, 2012

Facebook Sales Exceed Estimates as Companies Experiment With Ads

Chief Executive Officer Mark Zuckerberg is making headway in a drive to boost mobile-advertising revenue. Photographer: David Paul Morris/Bloomberg

Facebook Inc. (FB:US), owner of the biggest social network, posted sales that topped analysts (FB:US)’ estimates, a sign of early success in a push to make more money from advertisements aimed at users of handheld electronics.

Third-quarter sales rose 32 percent to $1.26 billion, Menlo Park, California-based Facebook said today in a statement. That compares with the average estimate of $1.23 billion, according to data compiled by Bloomberg. Profit excluding certain items also exceeded projections by a penny.

Chief Executive Officer Mark Zuckerberg has stepped up investment in tools designed to help businesses attract people who socialize on mobile devices. Facebook has introduced seven ad features created for smartphones and tablets since March, helping it garner 14 percent of ad sales from the mobile arena.

“They’re showing that they can transition even as they’re going from desktop to mobile,” said Benjamin Schachter, an analyst at Macquarie Securities USA Inc., who has a neutral rating on the stock and doesn’t own it.

Profit excluding certain costs was 12 cents a share in the third quarter. That compares with the average estimate of 11 cents a share. Facebook had a net loss of $59 million, or 2 cents a share, compared with profit of $227 million, or 10 cents, reflecting a larger provision for income taxes.

Facebook rose in late trading, after gaining less than 1 percent to $19.50 at the close in New York. The stock has fallen 49 percent since the initial public offering in May.

‘Real Progress’

The company has lost more than $40 billion in market value since holding the largest Internet IPO on record as investors fretted that it won’t quickly ramp up mobile-related sales.

Arvind Bhatia, an analyst at Sterne Agee & Leach Inc. in Dallas, had predicted that only 5 percent of Facebook’s ad sales would come from mobile.

“They still have a long way to go to prove that this is sustainable -- they can keep going in this direction, but what it shows is that things can move relatively quickly,” he said.

With mobile marketing making gains, the number of ads being shown kept pace with the growth in users during the quarter, Facebook Chief Financial Officer David Ebersman said during a call with analysts today. Ad prices increased 7 percent, while the number of ads delivered increased 27 percent.

‘Misunderstood’ Opportunity

The company’s mobile growth prospects are promising as users show more engagement on wireless devices than on desktop computers, Zuckerberg said on the call. The company may eventually make money more easily from mobile ads than those on desktops, based on time spent on the service by users, he said.

“Our opportunity on mobile is the most misunderstood aspect of Facebook today,” he said. “Most people underestimate how fundamentally good the trend toward mobile can be for Facebook.”

About 60 percent of Facebook’s more than 1 billion members are accessing the service on mobile, compared with about 47 percent a year earlier. Since March, Facebook has introduced a range of tools aimed at wringing sales of mobile ads.

“We’ve said we are increasing our investment in monetization and we’ve also said that we are increasingly focused on mobile,” Chief Operating Officer Sheryl Sandberg said in an interview. “The quarter represents real progress on both of those fronts.”

Lagging Google

Still, in its first year in the running, Facebook is likely to rank only sixth in U.S. mobile advertising for 2012, with just 2.8 percent share of the market, according to EMarketer Inc. Google Inc., which is No. 1, is estimated to hold 55 percent, up from 52 percent in 2011.

Earlier this year, Facebook rolled out Sponsored Stories as its inaugural mobile ad service, letting businesses promote content that a user’s friends have signaled they “like” or interacted with in some way. The social network then added Promoted Posts, which let companies highlight marketing messages to their fans and friends of fans.

“Mobile’s a great opportunity to grow our users, to grow engagement and to grow monetization,” Sandberg said. “We’re at the very early stages.”

Ad revenue grew 36 percent during the quarter to $1.09 billion. The company’s revenue from payments and other fees, which include sales of virtual goods in games, rose 13 percent.

“We had a solid performance in terms of user growth and our financial results,” Ebersman said in an interview. “Our business continues to grow globally.”

Europe Weakness

Results in Europe were dragged down by macroeconomic weakness there, he said.

The company has tried to improve the effectiveness of its ad tools that help better target users. It has rolled out the “Facebook Exchange,” letting companies tailor ads on Facebook based on their Web-browsing history outside of the service. The company also said it would roll out a service that lets advertisers use data they’ve collected from their own customers, such as e-mails and phone numbers, to target those users on Facebook, using a software tool that is designed to protect the members’ identities.

While the company is investing in its business, its shares could come under pressure in the coming weeks as more shares are freed up for potential trades.

Some shareholders “may choose to divest their stakes rather than take risks associated with holding the shares any longer,” Brian Wieser, an analyst at Pivotal Research Group LLC, wrote in a research note. “Such an influx would add meaningfully to stock-price risks if buyers are not present to absorb the shares.”

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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Companies Mentioned

  • FB
    (Facebook Inc)
    • $74.37 USD
    • -0.82
    • -1.1%
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