Updated with next-day share price.
Not anymore. Benefiting again from a continued surge in mobile advertising, Facebook today said fourth-quarter net earnings jumped more than eightfold from a year ago, to $523 million, or 20 cents a share, on a 63% rise in sales, to $2.6 billion. Ad revenue growth was even higher, 76%, the rest from payments and other fees.
The social network said mobile ad revenues constituted 53% of overall ad sales, up from just 23% a year ago and 49% in the third quarter. Facebook’s May 2012 initial public offering was marred chiefly by investors’ uncertainty that it could make money on mobile ads. But since late last year, they’ve actually driven Facebook’s resurgent revenue growth more than anything else. “Growth has been incredible particularly in mobile,” says James Borow, CEO and cofounder of Facebook ad firm SHIFT.
The results outpaced analysts’ expectations, and Facebook’s shares rose about 7% in immediate after-hours trading, after falling 3% during the trading day Wednesday. Update 1:45 p.m. Pacific: Shares are now up almost 10% now. Update 3 p.m. Pacific: Up 12% now. Twitter’s shares basked in the glow, up 6% after-hours. Google’s shares rose 2%.
Update Jan. 30: Facebook shares hit an all-time high of $62 today as shares rose nearly 16% at midday.
While Facebook is facing increased competition from the likes of Twitter, Pinterest, and Yahoo's Tumblr, that competition doesn’t seem to be slowing it down much. According to Facebook ad firm Nanigans, Facebook ad prices, whether measured by the click or by the impression, both rose in the quarter.
But advertisers still saw much higher revenue per click, says Dan Slagen, Nanigans’ senior vice president of marketing: Revenue per click, at $1.05 on average in the third quarter, jumped to $1.80 in the holiday quarter. Slagen says some of that is thanks to the holidays, but he reckons revenue per click would have risen to about $1.40 to $1.50 anyway. “The shift of dollars to mobile is so strong that CPMs [cost per 1,000 ad impressions] are beginning to rise,” agreed Borow.
Another factor driving the results, according to Jared Belsky, president of the online ad agency 360i, is the ability to target very large audiences more precisely than can be done through other online publishers, even Google. Facebook’s Custom Audiences allows targeting on a wide variety of factors, from demographics to interests to comments and Likes, as well as data from sources outside Facebook such as what websites they’ve visited. “That’s where Facebook is really getting the attention of marketers,” Belsky says.
You can listen to the webcast of the call starting at 2 p.m. Pacific, and earnings slides are here. I’ll go over the mostly ad-related highlights below, plus anything else that CEO Mark Zuckerberg has to say beyond boilerplate stuff.
Meantime, the basics:
- And a few highlights provided by Facebook:
- Revenue for the full year 2013 was $7.87 billion, an increase of 55% year-over-year.
- Income from operations for the full year 2013 was $2.80 billion.
- Net income for the full year 2013 was $1.50 billion.
- Free cash flow for the full year of 2013 was $2.85 billion.
- Daily active users (DAUs) were 757 million on average for December 2013, an increase of 22% year-over-year.
- Mobile DAUs were 556 million on average for December 2013, an increase of 49% year-over-year.
- Monthly active users (MAUs) were 1.23 billion as of December 31, 2013, an increase of 16% year-over-year.
- Mobile MAUs were 945 million as of December 31, 2013, an increase of 39% year-over-year.
And the call is underway with Zuckerberg. 2014 will be the year we begin to offer new and more engaging experiences in mobile, he says. We’re also seeing people engage more, he says: 6 billion Likes in December, up from 3.8 billion a year ago.
Zuckerberg also talks up separate mobile apps such as Instagram and Facebook Messenger, and he promises more in the latter in coming months. Facebook Groups also gets a shout-out. Essentially, he’s looking to allow people to share anything they want with any groups of people they want.
On to the business side: Facebook surveys more than 35,00o people a day to improve its ads. Even as the volume of news feed ads has grown, engagement has remained steady.
COO Sheryl Sandberg joins to talk about the revenue side, noting the 76% jump in ad revenue as well as the first billion-dollar mobile revenue quarter–more than all revenues the previous year.
Sandberg outlines three key drivers for the ad business:
1) strong mobile engagement: Marketers are starting to shift their budgets to reach people on their phones, and that was especially apparent during the holidays.
2) strength across four advertiser segments: direct-response advertisers, small and medium-sized business, developers, and brand marketers, especially consumer-packaged goods companies.
3) product development: The goal is to make ads as useful as other content. Custom Audiences also has been a big driver.
Where will the ad business go next? On Facebook, marketers can personalize their messages at unprecedented scale; this is the biggest shift in marketing in generations, she says. Facebook is making business personal again, she adds for a final slogan.
Next up is Chief Financial Officer Dan Ebersman. I won’t repeat the numbers you’ve already seen, just the new ones. Just missed some interesting ad metrics that I’ll backfill later.
Now the best part, the Q&A:
Q: Rank order the four groups of marketers, especially small businesses.
Sandberg: Won’t break it out, but all four are growing. SMBs are a particular focus for us. Some 25 million SMBs have advertised on Facebook.
Q: More on the separate mobile apps?
Zuckerberg: Our theory is that there are many different ways people want to share experiences. We want to build a handful of great new experiences that are separate from what Facebook is today. (In other words, we’re not going to let Snapchat and all the other upstarts siphon away our users.)
Q: How do you see competition to Messenger especially in Asia?
Zuckerberg: We now have more than half a billion using Groups a month and that’s something not a lot of people are paying attention to. Similar with Messenger. Taking it out of the main app, it gets room to breathe. We’ll add a lot of new things. 70% more people are using in in recent months.
Q: Seasonality in mobile ad revenue likely in Q1?
Ebersman: Seasonality is an important factor in the advertising business. But it’s really difficult to quantify seasonality in mobile advertising yet.
Q: Updates on brand and real-time conversations and video? TV advertisers interested yet?
Sandberg: We have a current video ad product that works very well and it’s part of what’s driving our growth. We’re also testing a mobile video ad. Overall in brand, we’re making steady progress. The real key is proving measurement. We have to go client by client, proving not just brand consideration but ringing the cash register.
Q: Sense of breakdown in ad impressions between desktop and mobile?
Ebersman: Higher number of ads on desktop but news feed ads are driving up average price per ad.
Q: Will ad load on Facebook remain stable or creep up?
Zuckerberg: The strategy is primarily on increasing the quality of the ad experience. It drive greater returns for advertisers. That’s a harder path for us to take, but the results of the past couple of quarters show we can drive business that way.
Ebersman: Positioning and quality of ads can matter more than the load.
Q: How long might it take Instagram to get to a similar ad load?
Ebersman: Too early to say. We’re going to move slowly.
Q: What’s adoption of more news stories in news feed?
Q: Update on teen engagement trends? (Finally!)
Ebersman: No. (Darn!)
Q: How is Graph Search doing?
Zuckerberg: We’re really early in the game on this. We haven’t even rolled out the mobile version yet, though that will come out pretty soon. Investment will be over three to five years.
Q: Progress on retargeting ads in mobile?
Sandberg: Retargeting is increasingly important. We’re really talking about relevance to users.
Shares are now up almost 12%. Investors apparently like what they’re hearing.
Q: Update on mobile ad network?
Sandberg: No results yet (it was announced only recently).
Q: What drove re-acceleration of desktop ads in Q4?
Ebersman: Holidays and news feed ads.
Q: Do you see users being able to buy physical products within Facebook apps?
Sandberg: No plans for direct e-commerce. Only ads.
Q: Contextual advertising is the Holy Grail for Facebook–status?
Sandberg: Targeting is a huge opportunity and challenge for us. Take direct-response, for instance–we can reach people before they search.
Q: How much are app install ads driving growth?
Sandberg: It’s a small but growing category. Mobile ad strength is very broad-based–developers, direct, and brand.
Q: How important is machine learning to Facebook?
Zuckerberg: Yann LeCun, a founder of deep learning, recently joined our AI group. Their goal is to try to understand how everything on Facebook is connected. Over time the real value will be if we can understand the meaning of what people are sharing, we can provide more relevant experiences.
Q: Sustainability of gross margins?
Ebersman: Q4 usually stronger. But lots of costs coming.
Q: Potential for ad quality over the next few years–what’s the upside?
Zuckerberg: There’s a lot of room to grow here. But a lot of this will be incremental. There’s a long way to go before we get to the quality level we want.