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Facebook reports standout results, but company seeks to temper investor exuberance

PUBLISHED : Thursday, 04 May, 2017, 7:21am
UPDATED : Thursday, 04 May, 2017, 7:27am

Facebook’s main social network is still driving sales growth, even as executives seek to temper investor exuberance about future quarters.

First-quarter revenue beat analysts’ estimates as monthly users jumped to 1.94 billion, up 17 per cent from year ago levels. Analysts on average had expected monthly active users of 1.91 billion, according to financial data and analytics firm FactSet.

Mobile ad revenue accounted for about 85 per cent of the company’s total advertising revenue of US$7.86 billion in the first quarter ended March 31, versus analysts average of US$7.68 billion, according to FactSet.

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The social media giant is expected to generate US$31.94 billion in mobile ad revenue globally in 2017, up 42.1 per cent from a year earlier, according to research firm eMarketer.

That would give Facebook a 22.6 per cent share of the worldwide mobile ad market, with arch-rival Google projected to be the leader with a 35.1 per cent share, according to eMarketer.

“A great quarter, but what comes next?” said Rob Sanderson, analyst at MKM Partners. “We’re just kind of in this wait-and-see mode in terms of the impact on the business. We don’t know how much ad load has driven growth.”

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With Facebook’s massive audience and its many targeted options for brands to reach those consumers through its social, messaging and photo-sharing apps, the company has been one of the two main beneficiaries of an uptick in digital ad spending, alongside Google.

Facebook has been saying it will stop increasing the frequency of ads it shows in users’ news feeds later this year, potentially tapping the brakes on the frenzied pace of sales growth. It will take time for the company to prove that other bets, such as its heavy investment in video and other apps such as Instagram, Messenger and WhatsApp, can start contributing meaningfully to revenue in future quarters.

Facebook shares were little changed following the report, after declining less than 1 per cent to US$151.80 at the close in New York.

Facebook in the last few years has depended on its social network -- a mobile-advertising machine -- to fund investments in other areas, which are much less developed as businesses. The company spun off its Messenger chat tool as a separate app in 2014, and just this year started testing advertising on it, alongside bot functions that let businesses reach consumers. Messenger now has 1.2 billion users.

WhatsApp, which Facebook purchased the same year for US$22 billion, hasn’t started making money yet. The company is also pouring money into longer-term businesses and ideas, such as virtual reality goggles and connecting the world to the internet. In a presentation to developers last month, Facebook discussed further-off projects, like using technology to type directly from brain waves and developing a way to feel words.

Facebook’s work with Instagram is seen as proof that it can replicate its main network’s success in advertising on other properties. Instagram, now with 700 million users, has started adding to revenue growth. The company has also benefited as more advertisers purchase video ads.

Chief Executive Officer Mark Zuckerberg has been doubling down on investment in video, even predicting that the news feed will eventually be mostly video. The company added a daily video-story function to all of its apps in the first quarter, cloning a popular feature from its smaller, newly public competitor Snap Inc, the owner of Snapchat.

Facebook has been making content deals for more premium video on its site, with a plan to make money by sticking ads in the middle of the content.

The company has also heavily promoted a function on its site that lets people broadcast videos live, which has been used in ways Facebook didn’t anticipate, such as to stream acts of murder and suicide. After widespread criticism, Zuckerberg on Wednesday said the company will hire 3,000 people to monitor those videos around the world and help prevent instances of violence.

Fake news and live video murders “need to be taken incredibly seriously because there are implications for user engagement,” said James Cakmak, an analyst at Monness Crespi Hardt & Co. “These are critical issues that need to be addressed.”