By Deepa Seetharaman
Facebook Inc. posted a 39% rise in second-quarter revenue, a
fresh sign of how deep-pocketed big brands are spending more to
advertise across the social network.
The Menlo Park, Calif.-based company reported revenue of $4.04
billion for the three-month period ended June 30, compared with
$2.91 billion a year earlier. Analysts polled by Thomson Reuters
had expected Facebook to book revenue of nearly $4 billion.
But expenses grew even faster, sending Facebook's net income
down 9.1%, to $719 million, or 25 cents per share, compared with
$791 million, or 30 cents a share, in the year-ago period.
Excluding certain expenses, Facebook said it would have earned
50 cents per share. Analysts had projected earnings of 47 cents on
that basis.
Facebook said in April that costs and expenses would rise as
much as 65% this year as it invests in data centers, new hires and
other long-term initiatives including virtual reality and
solar-powered drones. During the second quarter, expenses rose
82%.
Expectations were high ahead of Facebook's second-quarter
earnings. On July 20, the 11-year-old company's market value
surpassed that of General Electric Co. for the first time. Facebook
shares have risen 24% so far this year, far outpacing the 7.9% rise
in the Nasdaq Composite Index.
The more-than-$1 billion jump in Facebook's quarterly revenue
partly reflects how larger companies are spending more to capture
an audience that spends a large chunk of time on Facebook. Facebook
and its other mobile apps account for anywhere between one-fifth
and one-third consumers spend on mobile devices, according to
analyst estimates.
During the quarter, Facebook made two big moves aimed at
courting large advertisers. It beefed up the ad capabilities of
Instagram, the photo-sharing mobile app it bought in 2012 for $1
billion, with new ad formats and targeting options. Many of
Instagram's users are in the under-35 demographic coveted by
advertisers. Facebook also said it would start sharing ad revenue
with video creators in a bid to attract more high-quality videos to
the social network and grab a piece of advertisers' television
budgets.
Analysts expect Facebook will be able to rely more heavily on
video ads amid competition in mobile advertising, from Google Inc.,
Twitter Inc., Yahoo Inc., Chinese e-commerce giant Alibaba Group
Holding Ltd. and others.
Much of the increased spending is expected to come as
advertisers shift budgets from television to online. It remains an
open question how quickly companies are making this change and some
analysts say it hasn't happened yet.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires