Deepa Seetharaman reports in the Wall Street Journal:
Facebook and Google will capture more than half of the $69 billion world-wide mobile-advertising market this year. Google leads, with 35% share, but Facebook is growing faster.
Facebook Inc. offered fresh evidence of its allure to deep-pocketed big brands, as it and Google Inc. increasingly take the lion’s share of the fast-growing mobile advertising market.
The social networking company posted a 39% increase in quarterly revenue, nearly three-fourths of which came from advertising on mobile devices. Expenses grew faster than revenue, but executives said the company would spend less than previously forecast this year, which will boost profitability.
The jump in Facebook’s quarterly revenue reflects how larger companies are spending more to capture an audience that spends a large chunk of time on Facebook. Analysts estimate that consumers spend between one-fifth and one-third of their time on mobile devices on Facebook-owned apps. Users now spend more than 46 minutes a day on average on Facebook and its other properties, including Facebook Messenger and photo-sharing app Instagram, Chief Executive Mark Zuckerberg said.
Market researcher eMarketer says that together, Facebook and Google will capture more than half of the $69 billion world-wide mobile-advertising market this year. Google leads, with 35% share, but Facebook is growing faster.
Facebook’s results stand in contrast to other tech firms that increasingly rely on mobile users and advertisers for growth. Twitter Inc. ’s shares tumbled 14% Wednesday after it reported a weak gain in new users. Investors also punished Yelp Inc., sending its shares down 25%, after the online reviews site lowered its revenue outlook.
Beyond mobile ads, Facebook and Google increasingly compete in areas ranging from streaming video to virtual reality and search. Mr. Zuckerberg told analysts on a conference call that Facebook users now conduct about 1.5 billion searches a day. Facebook has indexed more than two trillion posts.“I actually think in some ways they’re very similar,” said Mark Mahaney, an analyst for RBC Capital Markets. Both are companies with more than a billion users “that can layer in more revenue streams over time.”
Facebook, for example, is beefing up the ad capabilities of Instagram, which it bought in 2012 and generates almost no revenue today. Many Instagram users are in the under-35 demographic coveted by advertisers.
Facebook also said it would start sharing ad revenue with video creators in a bid to attract more high-quality videos to the social network and grab a piece of advertisers’ television budgets.
In fact, Facebook today resembles even more closely a younger Google—growing rapidly with enviable profit margins. Excluding the impact of the rising dollar, Facebook said revenue would have increased 50%, and advertising revenue by 55%.
Brian Wieser, an analyst with Pivotal Research Group, called it “remarkable” for “a company this size to keep growing that fast.”
Advertisers say they are spending more on Facebook because it allows them to target users narrowly, such as people who have been engaged in the last six months or people who download gaming apps. “We feel we are still just scratching the surface when it comes to advertising on Facebook,” said Cameron Deatsch, head of growth marketing for Australian enterprise software company Atlassian, who said the company had significantly increased spending on the social network in the past year.
Facebook executives said during Wednesday’s conference call that when Wendy’s was launching a spicy chicken sandwich, the restaurant chain used Facebook to target millennials who liked spicy food. Sheryl Sandberg, Facebook’s chief operating officer, said big companies like HBO were buying Facebook’s mobile app-install ads, not just startups and developers.
Expectations were high ahead of Facebook’s second-quarter earnings, especially after strong results from Google and Amazon.com Inc. On July 20, the 11-year-old social network’s market value surpassed that of General Electric Co. for the first time. Facebook shares have risen 24% so far this year, far outpacing the 7.9% rise in the Nasdaq Composite Index. Facebook shares fell 3% after the results were released late Wednesday.
Facebook said second-quarter revenue reached $4.04 billion, up from $2.91 billion in the same period a year earlier.
Net income declined 9.1%, to $719 million, or 25 cents a share, from $791 million, or 30 cents a share, a year earlier, reflecting Facebook’s continued heavy spending, particularly on employees. Facebook said it added 873 employees in the second quarter, to a total of 10,955, which is 52% higher than a year earlier.
Costs and expenses rose 82% in the second quarter with research-and-development costs more than doubling. Facebook’s operating margin shrank to 31%, down from 48% a year ago.
Mr. Zuckerberg has previously said this would be a year of heavy investment in data centers, new hires and other long-term initiatives, including virtual reality and solar-powered drones. Wednesday, the company trimmed its forecast for expense growth, saying expenses would rise as much as 60% this year, down from its previous projection of up to 65%.
The company said 1.49 billion people now check Facebook at least once a month, up from 1.44 billion as of March 31. Of those, Facebook said 968 million check in daily, up from 936 million in the first quarter.
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