Buoyed once again by strong mobile ad revenues, Facebook (FB +3.14%) crushed investor expectations with a much higher-than-expected third-quarter profit of 25 cents a share on revenues up 60% from a year ago, to $2.02 billion.
Shares rose in immediate after-hours trading by as much as 15% to top a new high of more than $56 a share. As of 1:30 p.m. Pacific, before the earnings call when any guidance on the future may further influence investors, they had settled back to about a 10% rise.
Facebook (NASDAQ:FB) public shares dropped $1.79 or (-3.60%) in early Thursday morning trading, but rallied lto end the dat at $50.25, up $1.20 or (+2.44) on news of its Q3 2013 earnings report. (Click Image To Enlarge)
Although investors initially were wowed, during the earnings call Chief Financial Officer David Ebersman mentioned a couple of facts that appeared to spook investors and eliminated most of that 15% jump. For one, he said Facebook would not increase the number of ads its users see in their newsfeeds, as it has in recent quarters. That’s significant because the increases in ads has been a big contributor to Facebook’s revenue growth.
Ebersman also cited a decrease in the number of younger teens using the service daily. Although he said overall teen users are stable, there have been persistent anecdotal accounts of a drop in teen usage of Facebook in favor of newer services such as Snapchat and Instagram (owned by Facebook, of course). All that said, Facebook also pointed out its wide lead over other services. With Instagram, Facebook commands more mobile time spent on the service than YouTube, Pandora, Yahoo, Twitter, Pinterest, Tumblr, AOL, Snapchat, and LinkedIn combined, according to comScore.
At 3:45 p.m. Pacific, shares were hovering at a half-percentage point in the green, but later they were down a fraction. One analyst, Brian Wieser of Pivotal Research, said in a note to clients that investor concerns were overdone:
Reactions to comments on teen use of FB seemed an over-reaction to us. As teens aren’t the entities spending advertising on Facebook, there is little to worry about near-term, certainly. Of course, investors are concerned if these audiences favor other social media. However, so long as they can be reached on Facebook to a degree and so long as FB has a unique capability to reach more total people than any other media owner, Facebook retains advantage in its ad sales efforts against most advertisers. Further, Facebook’s holding of Instagram hedges risks against this audience. Other concerns arising during the call related to expectations on ad loads were also over-done, as statements highlighted that the company is intending to work within limits in not overwhelming consumers with commercials. Our view is that while limited inventory has some constraining effects on revenues, they will likely be more than offset by FB’s ongoing efforts to improve yield management, targeting and optimization. Further, brand advertisers may be somewhat indifferent to changes in prices per ad units so long as their broader media goals are satisfied.
Analysts had expected Facebook to post a profit of 19 cents a share, up from 12 cents a year ago, on a 52% rise in revenues to $1.9 billion. Facebook’s shares, which have nearly doubled in the past quarter to as high as $54.83, closed down a little under 1% today, to $49.01. The day after the second-quarter report that showed strong mobile ad revenues, Facebook’s shares jumped 26%.
“For nearly ten years, Facebook has been on a mission to connect the world,” CEO Mark Zuckerberg said in a statement.
”The strong results we achieved this quarter show that we’re prepared for the next phase of our company, as we work to bring the next five billion people online and into the knowledge economy.”
Revenue growth was “impressive,” Andrew McDermott, vice president of product at Facebook ad partner Spruce Media, said in an interview. But he said that the increasing number of ads in the newsfeed had been a “major driver of growth,” so Facebook’s intention to back off those increases means growth could moderate.
However, he said that the Instagram ads announced last week, as well as possible video ads in the Facebook news feed, should “more than make up” for that growth slowdown as they roll out. McDermott said.
“That could more than compensate overnight.”
Some of Facebook’s ad growth may be driven by Instagram already, says Craig Elimeliah, VP of creative technology at the customer experience ad agency RAPP. That’s because Instagram’s mobile DNA is likely already informing Facebook’s own mobile ads and in any case has gotten many more advertisers excited about the prospect for more mobile ad formats on the social network. He said advertisers and agencies need both more creative formats and more control to target people by what they’re posting, where they are, and the time of day.
The highlights from the call are below, but Facebook provided its own as well:
- Revenue: $2.02B up 60% from last year (ahead of analyst consensus which was $1.91 billion on average)
- Revenue from advertising: $1.80B, up 66% from last year
- Mobile Ad Revenue: 49% of advertising revenue during the third quarter (up from 14% in Q3 2012)
- Payments and other fees revenue: $218 million
- Earnings per share: $0.25 (beat consensus of $0.19)
- ARPU, average revenue per user, is up to $1.72
- Mobile revenue represented 49% of advertising revenue for Q3, approx. $881 million
- Mobile MAUs (monthly active users) grew 45% year-over-year to 874 million
- Mobile DAUS (daily active users) were 507 million on average for September 2013
- MAUs were 1.19 billion as of September 30, 2013 up 18% year-over-year
- DAUs were 728 million on average for September 2013 up 25% year-over-year
COMMENTARY: The word “BlackBerry” did not come up during Facebooks Q3 earnings conference call yesterday, but you can see why such a crazy idea like the social network buying the beleaguered handset maker might have a sliver of plausibility to it. The company is moving closer to a tipping point where mobile usage and revenues will soon be outweighing that of desktop, and although Zuckerberg has ruled out the so-called “Facebook phone,” you never know how the company may want to capitalize on its mobile muscle in the future.
CEO Mark Zuckerberg today noted during the company’s earnings call that 48 percent of users on a given day are only accessing it from mobile. That comes as nearly half — 49 percent — of the company’s advertising revenues, its key revenue driver, now come from mobile ads. That means nearly $890 million in Q3 was made from Facebook’s different mobile advertising units such as app install ads and engagement ads. He said.
“It’s a pretty incredible sign of how Facebook has evolved in the past year.”
This shows that Facebook is on track to match the prediction it made in Q2 that mobile revenues would pass desktop by the end of this year. And from the looks of it, the change of balance could come soon on mobile, too. Mobile continues to grow much faster for Facebook. Mobile MAUs grew by 45 percent over the last year (to 874 million in Q3 2013 from 604 million in Q2 2012) — these include both those who are using mobile exclusively for Facebook, and those who are using mobile at some point in the month in addition to desktop. That 45 percent works out to 2.5 times as much growth as MAUs overall, which were up 18 percent ($1,189 million in Q3 2013 and $1,007 million in Q3 2012).
Facebook points out its figures do not include Instagram-only usage, but during the call COO Sheryl Sandberg provided some striking figures that point to just how much time consumers are spending on Facebook’s mobile properties when you do add it in. Combined with Instagram, the very popular mobile-first, photo-based social network, Facebook now has 150 million monthly active users. It accounts for one of every five minutes spent on mobile in the U.S., Sandberg noted. And that is even having an impact on desktop: Facebook (again, with Instagram) account for one in 8 minutes on desktop, she said.
What does Facebook’s mobile traffic work out to compared to other popular properties? Sandberg noted that Facebook accounts for more mobile minutes in the U.S. than “YouTube, Pandora, Yahoo, Twitter, Pinterest, Tumblr, AOL, Snapchat and LinkedIn — combined.” (It seems that this stat was taken from comScore research, which actually combined Instagram and Facebook.)
Mobile-only users on a monthly basis now stand at 254 million, Facebook noted in one of the slides that accompanied its presentation. The full deck of those slides, which also spell out other metrics like MAUs and DAUs across mobile and desktop, is here. With 1.19 billion MAUs overall, it means that 21.3 percent of MAUs are now mobile-only. That is up 2.3 percentage points from 19 percent in Q2.
The same may not be said for desktop. CFO David Ebersman noted that daily actives on web “declined modestly” in contrast to what is happening on mobile. Facebook’s daily active users on mobile worldwide now stand at 507 million, up by 38 million over Q2; while monthly active users are up to 874 million, up 55 million from Q2.