By Deepa Seetharaman
Facebook Inc.'s mobile bet has shrunk the time it takes the
social network to leap from one milestone to the next: On
Wednesday, Facebook topped $2 billion in quarterly profit, six
months after crossing the billion dollar mark for the first
time.
The number of new users -- and the ad dollars that follow them
-- surged in the second quarter.
Facebook added 220 million monthly active users in the past
year, bringing the total audience to 1.71 billion users. More than
90% of Facebook's users are on mobile devices, where Facebook rakes
in the bulk of its ad dollars.
Advertising on mobile devices accounted for 84% of Facebook's
$6.2 billion in advertising sales in the latest quarter.
Revenue generated from mobile ads jumped 80% in the second
quarter, faster than Facebook's overall 59% advertising growth
rate.
"Mobile continues to be the strength," Facebook Chief Financial
Officer Dave Wehner said in an interview.
The banner results drove Facebook's shares to a new high,
crowning it the fourth most valuable listed company in the U.S. In
after-hours trading, the stock price jumped 7% to $131.51, giving
it a market capitalization of $370 billion.
Executives said they expect growth to slow over the rest of the
year, as the company laps the second half of 2015, when revenue
growth began to accelerate. But it has its next growth move
planned: video.
For now, mobile is enabling an acceleration of growth. Facebook
and Google -- now known as Alphabet Inc. -- each hit $2 billion in
quarterly profit 12 years after their founding. But it took Google
3 1/2 years to go from $1 billion to $2 billion -- something
Facebook accomplished in a half a year.
The social network said net income in the second quarter totaled
$2.06 billion, or 71 cents a share, nearly tripling the $719
million in profit a year ago.
Facebook is outpacing its competitors in advertising and user
growth.
On Tuesday, Twitter Inc. said it has added nine million users in
the past year, as it reported its smallest quarterly gain in
revenue. Yahoo Inc. generated $504 million in sales last quarter
from its mobile, video, native and social ads.
Facebook's market share in mobile advertising, where it is the
second-biggest player after Google, is expected to jump to 12% this
year from 8.6% two years ago, according to research firm eMarketer.
Twitter and Yahoo both trail, with less than a 2% market share this
year.
"There's a common misconception that the law of large numbers
will prevent Facebook from growing further," said Rahul Shah, chief
executive of Ideal Asset Management, who says Facebook accounts for
about 40% of his allocation. "But I think what they're missing is
that they're stealing ad dollars from every other source there is.
Pricing will continue to rise and they'll continue to beat
estimates."
Facebook generated $3.82 in revenue per user in the second
quarter, up from $2.76 a year ago. Its average price per ad rose 9%
as users spent more time on their mobile app, where Facebook only
shows higher-priced news feed ads, Mr. Wehner said.
On desktop, Facebook shows a mix of news feed ads as well as
lower-priced ads on the right-hand side of the news feed.
Facebook's success in mobile is the result of efforts started
back in 2012, when the company was struggling with users'
transition to smartphones.
At the time, CEO Mark Zuckerberg told his team to prioritize
mobile-first products, and said he kicked out anybody who proposed
features tailored for desktop.
Wednesday, Mr. Zuckerberg said Facebook would apply that same
focus to becoming "video-first." The company is pouring big money
into this effort and Mr. Zuckerberg predicted that within five
years or so most of what people consume online will be video.
Facebook will have to make it easier to watch videos as well as
offer tools to create them. Mr. Zuckerberg said the company is
looking to build video products for its messaging apps such as
Facebook Messenger and WhatsApp, both of which have than a billion
users apiece.
Over the past six months, the company has been promoting its
live-video product, Facebook Live. Last month, The Wall Street
Journal reported that Facebook was paying more than $50 million to
nearly 140 media companies and public figures to broadcast
live.
This effort could help Facebook persuade advertisers to divert
their television ad budgets to buy video ads on the social network.
Video is "one of the big things that if we get right I think it's
going to unlock a lot of sharing and opportunity," Mr. Zuckerberg
said.
Facebook is testing models so creators can make money from
videos posted on Facebook, but nothing has been widely rolled
out.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com
(END) Dow Jones Newswires
July 28, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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