Facebook soars amid mobile ad success

PUBLISHED : Thursday, 25 July, 2013, 8:11am
UPDATED : Thursday, 29 August, 2013, 4:13am

Facebook delivered strong evidence it can thrive on smartphones and tablets on Wednesday, reporting a much better-than-anticipated surge in mobile advertising revenue in the second quarter that ignited a nearly 17 per cent share rally.

The world's No1 social network also reported an uptick in daily visitors to its service, allaying concerns that a new crop of fast-growing mobile upstarts like WhatsApp and Snapchat could cut into the time consumers spend on Facebook.

Facebook's growing appeal to consumers and advertisers combined to deliver the company's strongest advertising revenue growth since the third quarter of 2011. Prices for advertisements, which fell at Google and Yahoo, increased 13 per cent at Facebook.

"Facebook has nearly 700 million people that use the platform daily. There's no bigger audience on the planet," said Jordan Rohan, an analyst at financial services firm Stifel Nicolaus.

Facebook said revenue from e-commerce companies doubled year on year in the second quarter, and the total number of advertisements displayed on its service grew by 43 per cent year on year.

The quarterly results, which also showed a spike in operating margin to 31 per cent, helped shore up investor confidence in a company which had struggled to regain credibility after a rocky initial public offering in May last year. Despite Wednesday's rally, its shares remain nearly 20 per cent below their debut price.

Chief executive Mark Zuckerberg said the company was beginning to reap the benefit of investments to retool certain products over the past 18 months, particularly the mobile version of its service.

"Coming into this year we could tell internally that we were turning a corner on that, that we were in good shape and could start to play a bit more offence," Zuckerberg said in a conference call with analysts on Wednesday.

With consumers increasingly accessing web services on smartphones, whose smaller screens make it more challenging to display advertisements, internet companies have struggled to adapt their businesses.

The newsfeed advertisements that Facebook has introduced over the past year inject marketing messages straight into a user's stream of news and content. Unlike Google's mobile ads, which generally command lower prices than the company's PC-based equivalent, Facebook's mobile newsfeed ads garner higher rates than its other forms of online advertisements, say analysts.

"Facebook is uniquely positioned because of the way consumers consume their content to show these types of ads," said Macquarie Research analyst Ben Schachter. "More and more people are finding that this is a useful place to show ads."

Facebook's revenue grew 53 per cent year on year in the second quarter to US$1.813 billion, with mobile advertisements accounting for roughly 41 per cent of total advertising revenue.