By Reed Albergotti
Facebook Inc. isn't signing up new users the way it once did,
but the social network is generating a lot more revenue from each
user.
Its fourth-quarter earnings grew 34%, to $701 million, propelled
by a 49% increase in revenue, to $3.58 billion. Mobile advertising
surged, helping Facebook narrow the gap with rival Google Inc.
The Menlo Park, Calif., company's spending limited profit growth
for the second quarter in a row.
Total costs and expenses jumped 87%, to $2.7 billion. Research
and development costs, which includes salaries for much of the
staff absorbed through recent acquisitions, more than doubled, to
$1.1 billion, from $408 million.
Operating margins fell to 29% from 44% a year earlier.
The 3% increase in daily active Facebook users last quarter was
the lowest since 2012. The share of users who visit daily, which
Facebook terms "engagement," remained flat at 64%, the first time
that ratio didn't increase since the company went public more than
two years ago.
Still, it is collecting more advertising revenue for each user.
Globally, that figure rose 31%, to $2.81, compared with $2.14 in
the same quarter a year earlier.
In the U.S. and Canada, Facebook's most-developed market,
revenue grew even faster, to $9 a user, up from $6.03.
Most of Facebook's user growth is outside North America, where
spending on advertising pales in comparison. In its Asia-Pacific
region, average revenue was $1.27, and elsewhere it was 94
cents.
Facebook said 85% of its users now access the network via mobile
devices, and more than a third access it exclusively via mobile.
Advertisers are following: Facebook said 69% of its $3.6 billion in
advertising revenue came on mobile devices, up from 53% of
advertising revenue in the year-earlier period.
Market researcher eMarketer estimates that Facebook last year
held 18.4% of the $40 billion mobile ad market, up from 16.6% in
2013. Google's share, by contrast, dipped to 40.5%, from 46.6%,
eMarketer said.
Facebook is offering little advertising on its three other
mobile-focused networks: WhatsApp, Instagram and Messenger.
"Facebook is a Goliath in mobile," said Rajeev Chand, head of
research at Rutberg & Co., an investment bank focused on the
mobile industry. Mr. Chand said Facebook increasingly competes with
television for advertisers.
"What's more powerful?" he asked. "A 30-second slot in a TV
program where everybody is DVRing past the ad, or...a Facebook news
feed where it's shared or promoted and gets the attention of
users?"
Across all digital advertising, eMarketer said Facebook's share
rose to 7.8%, from 5.8%, while Google's fell to 31.1% from
31.6%.
Chief Operating Officer Sheryl Sandberg said Facebook still has
plenty of room to grow its advertising revenue. "For any client, no
matter how important they are to us, we represent a very tiny part
of their ad spend," she said. "We want to drive their
business."
In after-hours trading, Facebook shares fell 2.5%, after gaining
46 cents a share to $76.24 in 4 p.m. Nasdaq trading. Facebook
reported its results after regular trading hours.
Facebook has been making a bigger push into online video,
challenging Google for supremacy in the growing market. Chief
Executive Mark Zuckerberg said it now averages more than three
billion video views a day, up from around one billion a day last
summer. Facebook said the majority of those views are on
mobile.
Those numbers are no doubt affected by Facebook's decision last
year to change videos in the news feed so that they playback
automatically, initially without sound.
A video that plays for more than three seconds before a user
scrolls past it counts as a view.
Video advertising could be a good source of revenue for
Facebook, said Forrester Research analyst Nate Elliott, but the
idea Facebook can take on Google's YouTube is "a crazy ambition,"
he added.
Mr. Elliott called Facebook more a medium for "micro video," or
short clips and YouTube better for longer videos that lend
themselves more to advertising.
"I don't know how you show a pre-roll ad in a six-second video,"
Mr. Elliott said.
Facebook said little about its successful app install ads
business, which drives users to download mobile games and other
apps.
Facebook doesn't break out revenue for app-install ads, but game
developers complain that there aren't enough ad slots to satisfy
the demand.
Craig Palli, chief strategy officer for Fiksu Inc. a
mobile-advertising software company, said the Facebook Audience
Network is beginning to solve that problem.
He said the ad network, which allows the app install ads to
appear on apps other than Facebook, is quickly growing larger.
"What Facebook Audience Network has done is allowed Facebook to
find larger amounts of inventory," for app install ads, he said.
"Facebook does not have a demand problem to grow. They have a
supply problem to grow," Mr. Palli said.
Write to Reed Albergotti at reed.albergotti@wsj.com
Access Investor Kit for Facebook, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US30303M1027
Access Investor Kit for Google, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US38259P5089
Access Investor Kit for Google, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US38259P7069
Subscribe to WSJ: http://online.wsj.com?mod=djnwires