Facebook beats targets with 61pc boost in second-quarter revenue

Second-quarter take of US$2.91b is driven by social media giant's mobile advertising business

PUBLISHED : Friday, 25 July, 2014, 1:35am
UPDATED : Friday, 25 July, 2014, 1:35am

Facebook's fast-growing mobile advertising business helped drive a 61 per cent increase in revenue during the second quarter, beating Wall Street's financial targets and sending shares to a record high.

The world's No1 internet social network said it saw increased interest from both advertisers and users during the second quarter, while the company's profit margins expanded.

Facebook now counts 1.5 million advertising customers and the company's ad business saw strong growth across all of its geographic regions, chief operating officer Sheryl Sandberg said.

I don’t think anyone was expecting this level of profitability

"We're seeing our existing advertisers spend more and we're seeing new people come on to the platform," Sandberg said.

Investors bid up shares of Facebook past US$75 in after-hours trading on Wednesday. The share gains gave the ffirm a valuation of about US$190 billion, putting it on par with IBM.

"It might be more expensive from a market cap perspective, but I don't think anyone was expecting this level of profitability," JMP Securities analyst Ronald Josey said.

Facebook's operating margin expanded to 48 per cent of revenue in the second quarter, up from 31 per cent in the year-ago period. Overall revenue of US$2.91 billion beat the average expectation of US$2.81 billion.

Facebook executives stressed on a conference call that the company planned to invest aggressively in new projects, such as the Oculus virtual reality headset business that Facebook recently acquired for US$2 billion.

And executives reiterated past comments that nascent advertising efforts in video and in the Instagram photo-sharing app would not contribute significantly to the top line in the near term.

Nor will Facebook take the "cheap and easy" route of putting ads or payment capabilities within its Messenger app, Facebook chief executive Mark Zuckerberg said.

Josey said that the go-slow approach was not a concern for investors. "There's really no rush to add them because their core business is doing so well," he said. Facebook said it now counted 1.32 billion monthly users, with about 63 per cent accessing the service every day.

Mobile advertising revenue grew 151 per cent year on year, accounting for about 62 per cent of Facebook's overall ad revenue. Facebook's newsfeed ads, which inject paid marketing messages straight into a user's stream of news and content, have ignited Facebook's revenue growth and bolstered its stock price during the past year.