Bloomberg News

Facebook Posts Second-Quarter Revenue, Profit Topping Estimates

July 23, 2014

Facebook

A Facebook data center. Photographer: Jonathan Nackstrand/AFP via Getty Images

Facebook Inc. (FB:US)’s revenue surged 61 percent in the second quarter, fueled by mobile advertising, sending the stock soaring in extended trading past its all-time closing high.

Sales rose to $2.91 billion for the period from $1.81 billion a year earlier, topping the average analyst estimate of $2.81 billion, according to data (FB:US) compiled by Bloomberg. Promotions on wireless devices accounted for 62 percent of advertising sales, the company said in a statement today. That was up from 59 percent in the prior period and from almost nothing at the time of Facebook’s 2012 initial public offering.

The results once again underline how the social network, whose stock plunged after going public because of investor scrutiny over its lack of mobile revenue, has quashed those concerns. With ads on smartphones and tablets now its core moneymaker, the Menlo Park, California-based company has worked to improve the quality of the promotions, added options for video and also debuted applications that can take advantage of audiences on mobile gadgets.

“Facebook just has a better advertising offering now,” said Shyam Patil, an analyst at Wedbush Securities who has the equivalent of a buy rating on the stock. “It’s a higher return on investment for the advertiser and so they’re able to pay more money, increasing Facebook’s revenue, and much of that is on mobile.”

The stock jumped in extended trading to as high as $75.45, after gaining 2.9 percent to $71.29 at the close in New York, putting it above Facebook’s record close of $72.03 in March. Shares are up 30 percent this year, compared with a 7.5 percent increase in the Standard & Poor’s 500 Index.

Net Income

Net income rose to $791 million, or 30 cents a share, from $333 million, or 13 cents, a year earlier, Facebook said. Profit excluding some items was 42 cents a share, exceeding the average analyst estimate of 32 cents.

Facebook’s costs and expenses in the quarter increased 22 percent to $1.52 billion.

“Our tools and the products we’re building are working,” Chief Operating Officer Sheryl Sandberg said in an interview, adding that the company now has 1.5 million advertisers. “They’re working to drive engagement, they’re working to drive sales.”

Similar Strength

Facebook’s performance was spurred by brands and marketers paying higher prices for better-quality promotions, said Chief Financial Officer David Wehner, who took over June 1 from predecessor David Ebersman. Wehner said the average ad price more than doubled from a year ago, even as ad impressions declined 25 percent over the same period.

“The decrease in ad impressions continues to be driven by the shift towards mobile usage,” Wehner said on a conference call.

Facebook’s revenue gain follows Google Inc. (GOOG:US)’s results last week, when the Web-search company posted sales that exceeded analysts’ estimates, largely based on the strength of online ads. Yet while Google reported a 6 percent decline in the average price of its ads, which was offset by a higher volume of promotions, Facebook has been able to charge more for fewer ads.

Facebook and Google are taking share from other Internet companies such as Yahoo! Inc., which last week reported a decline in quarterly sales and missed analysts’ projections.

In total, Facebook accounted for 5.8 percent of worldwide digital ad revenue in 2013, up from 4.1 percent in 2012, according to EMarketer Inc. Digital ad spending worldwide rose 14.8 percent to $120 billion last year and is projected to reach $140 billion this year.

Building Portfolio

To capitalize on these trends, Facebook has been building its arsenal of advertising services. Apart from rolling out a video-ad product to compete for television budgets and a network for distributing ads on other developers’ apps, Facebook this month agreed to acquire LiveRail, a startup that would help serve video promotions on the Web beyond the social network.

Chief Executive Officer Mark Zuckerberg has also been making multibillion-dollar acquisitions to diversify the company. Facebook in February announced it would pay about $19 billion for WhatsApp Inc., a messaging app with more than half a billion users. This week, the company completed the acquisition of Oculus VR Inc., which makes a virtual-reality headset that Zuckerberg has said will be a major communication device after mobile phones.

More Services

On the conference call, Zuckerberg signaled more services will be in the offing, such as payments through its Messenger app. He said Facebook will also continue investing in new technology.

“We will clearly do work in payments,” he said. “We still basically view ourselves as a partner to other companies in the payment space rather than trying to compete directly for that.”

Facebook said it now has 1.32 billion monthly active users, up from 1.28 billion in the prior quarter, with 654 million using the product daily on mobile phones. Revenue per user was $2.24, up from $2 in the prior quarter and $1.60 a year earlier.

“Their advertising model is scaling very nicely,” said Josh Olson, an analyst at Edward Jones & Co. “We’ve seen them take a very careful approach to advertising, doing things so that they don’t alienate their audience.”

Zuckerberg said on the call that Facebook continues to engage its users, with the average U.S. consumer spending 40 minutes on the social network each day. Like rival Twitter Inc. (TWTR:US), Zuckerberg added that Facebook is also helping people “connect around important public moments and personalities,” which is helping to drive “conversations of a huge scale.”

Experimental Apps

Facebook is also producing experimental apps in an initiative called Creative Labs, intended to fuel growth while retaining talented programmers who would otherwise leave to start their own ventures. The group has released several apps this year, including Paper, which makes a magazine-like experience for the social network, and Slingshot, for sending disappearing photo messages that can’t be opened unless the recipient sends one back.

“If they had incorporated everything into Facebook it would become clunky and difficult, so the multi-app strategy makes sense,” Patil said.

To contact the reporter on this story: Sarah Frier in San Francisco at sfrier1@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Reed Stevenson


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  • FB
    (Facebook Inc)
    • $76.08 USD
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