Why Mobile Growth is the Key to Facebook’s Future

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Robert Galbraith / REUTERS

Mark Zuckerberg, Facebook's co-founder and chief executive, introduces 'Home' a Facebook app suite that integrates with Android during a Facebook press event in Menlo Park, Calif., on April 4, 2013.

The future of computing is in the palm of your hand — and Facebook knows it. That’s why the most encouraging thing about the tech giant’s generally solid earnings report Wednesday was the fact that mobile revenues represent a fast-growing chunk of the company’s overall business. Facebook founder Mark Zuckerberg has made it clear that mobile growth is a top priority for the company. “There is no argument,” he told Wall Street analysts earlier this year. “Facebook is a mobile company.”

Facebook’s mobile efforts are starting to pay off: 30% of Facebook’s ad revenue came from mobile devices last quarter, up from 23% during the previous quarter and 14% the quarter before that. To put that in perspective, Facebook’s mobile revenue as a percentage of total revenue in the first quarter of 2012 was 0% — zero. Late last year, the number of daily Facebook users on mobile devices surpassed the number of users who access the site on desktop computers, an important and symbolic milestone. Eventually, Facebook expects to make more money off mobile users than it does off desktop users.

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“They are making the transition to mobile faster than anyone anticipated,” Sterne Agee analyst Arvind Bhatia told the Associated Press. “It seems like they are delivering.”

Part of this shift is being driven by a profound structural change in the technology industry thanks to the explosive growth of sophisticated smartphones like Apple’s iPhone and Google’s Android devices. The simple fact is that people are increasingly accessing Internet services like Facebook, Google, and Twitter on their smartphones, as opposed to traditional desktop computers. That’s why mobile ad revenue is rapidly becoming one of the most important consumer Internet metrics: In short, the locus of computing is moving away from the desktop and toward smartphones and tablets.

The audience numbers associated with Facebook are staggering. As of March 31, the social network had 1.11 billion users who logged on to the service every month, an increase of 23% compared to last year. Of those, some 751 million users logged on to Facebook using their mobile devices, an increase of 54% year-over-year. And 189 million users logged on to the site solely through their mobile device, more than double the number who did so last year. Facebook is expected to account for 13% of U.S. mobile ad spending this year, up from 9.5% in 2012, according to data from research firm eMarketer cited by Bloomberg.

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“They’re monetizing it better and better and better,” Michael Pachter, an analyst at Wedbush Securities, told Bloomberg, referring to Facebook’s mobile efforts. “They’re making progress — and dramatic progress.” Facebook shares edged higher to $27.51 in after-hours trading, but that’s still 28% below the $38 level at which the company went public last year, in the most highly anticipated — and hyped — initial public offering in years.

Over all, Facebook reported total sales of $1.46 billion, an increase of 38% compared to $1.06 billion one year ago. That was about what analysts were expecting. Advertising revenue was $1.25 billion, or 85% of the company’s total sales, a 43% increase from last year. Facebook’s net income came in a little beneath Wall Street expectations, in part because the company has boosted its spending as it hires new workers and develops new products. Last quarter, Facebook earned $219 million, compared to $205 million one year ago. Excluding certain items like stock-based compensation, Facebook earned 12 cents per share, just shy of the 13 cents that Wall Street analysts had been expecting.

“We’ve made a lot of progress in the first few months of the year,” Zuckerberg said in a statement. “We have seen strong growth and engagement across our community and launched several exciting products.” One of those products is the company’s new Home application for Google Android devices, which launched to great fanfare last month. Facebook has also re-tooled the all-important News Feed feature, which is where the most effective online ads are placed. Significantly, Facebook has found that packing more ads into the News Feed does not appear to be alienating users.

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Despite Wednesday’s solid earnings report — and encouraging mobile numbers — Facebook is still dealing with the lingering fallout from last year’s controversial IPO, which raised $16 billion for the company. The offering was supposed to be a triumphant moment for Silicon Valley and Wall Street. Instead, between trading glitches on the NASDAQ exchange, accusations of “selective disclosure” against Facebook’s bankers — the company had 33 of them, including every major Wall Street bank — and an offering level that appeared to be way too high, the episode turned into a major embarrassment for the company.

After going public at $38 per share, Facebook’s stock price rose as high as $45 before plunging to $20, prompting anger and lawsuits from investors who felt they were duped. On Wednesday, Facebook and its bankers asked a federal judge to dismiss a lawsuit that accused the company of misleading investors about the social network’s financial health, particularly with respect to its performance on mobile devices, Reuters reported. Facebook and its bankers argue that the company had “no obligation to publicly disclose internal projections on how increased mobile usage and product decisions might affect future revenue,” the news agency said.

Legal headaches aside, it seems clear that Facebook is starting to mature into a reliably profitable company, even if its results pale in comparison to those of tech titans like Apple and Google. Although Facebook is expected to account for 6.5% of overall U.S. online ad spending this year, that’s still far behind Google, which accounts for a whopping 41.6% of online spending, according to eMarketer data cited by the AP. Zuckerberg has made clear that the Facebook’s future lies in mobile advertising. The strategy is clear. Now, Facebook needs to continue to execute if it hopes to see its stock price return to its IPO level anytime soon.

4 comments
SahayaArunJose
SahayaArunJose

Yes, the future of Facebook is completely  rely on mobile devices and tablets. Facebook should concentrate more on its Apps (especially on IOS). I really hate the Facebook app on IOS. It needs lots of improvement. Being a giant in the social media segment and having a buggy app is annoying.


VijayBanga
VijayBanga

There may be growth in numbers but time spent on FB will come down substantially

ForbesBenny
ForbesBenny

Seems that fb  have a bright future. Whatever the way they make their business grow it sure is working. The reason I read this article with a huge amount of interest is because I am currently reading a book on Goodreads called THE 5-STAR BUSINESS NETWORKS by Vivek Sood and it is all about innovation. Facebook is obviously highly innovative = highly profitable.

HireAWiz
HireAWiz

I also believe that “30% of Facebook’s ad revenue came from mobile devices last quarter, 23% during the previous quarter and 14% the quarter before that.”

Thanks Sam!