Facebook Mobile Ad Growth Speeds Up

Investor's Business Daily

Facebook (FB) late Wednesday reported a 75% jump in mobile ad sales last quarter vs. Q1, as Q2 earnings and revenue handily beat Wall Street expectations.

Investors liked Facebook's results, pushing shares up 17% in after-hours trading, after the No. 1 social network released its results. The stock was trading near 31, a price it hadn't hit in regular trading since Feb. 1.

"This quarter was a clear victory for Facebook, with significant sequential growth," Sterne Agee analyst Arvind Bhatia told IBD. "They have made a very successful transition to mobile.

The company reported per-share profit minus items of 19 cents, up 58% from the year-earlier quarter. Revenue rose 53% to $1.81 billion. Analysts polled by Thomson Reuters had expected 14 cents and $1.62 billion.

The company said ad sales jumped 61% from the year-earlier quarter to $1.6 billion, accounting for 88% of total revenue. Ad sales had risen 43% in Q1.

The Q2 mobile ad sales came in at $656 million. In Q1, the $375 million in mobile ad sales were up just 22.5% from Q4.

The Menlo Park, Calif.-based company said its monthly users rose 21% from Q2 2012 to 1.15 billion, with monthly mobile users jumping 51% to 819 million.

The results were "very strong," Cantor Fitzgerald analyst Youssef Squali wrote in a research note. The acceleration in ad growth is "material," he says.

The company's been rushing into the mobile business, last year declaring itself a mobile company. Mobile ad sales accounted for 41% of all ad revenue in Q2, up from 30% in Q1, 23% in Q4 and 14% in Q3.

Facebook CEO Mark Zuckerberg, on a conference call with analysts, said the company now has more daily users on mobile devices than on desktop devices. "Soon, we'll have more revenue on mobile than on desktop, too," Zuckerberg said.

Mobile ads account for just 2% of ad sales worldwide, which gives Facebook plenty of room to expand, Sheryl Sandberg, the company's chief operating officer, said on the call.

"Facebook is poised to play an influential role in the evolution of marketing," she said.

Operating costs fell 35% in the quarter to $1.25 billion. Much of that is attributed to share-based compensation costs in the year-earlier period, when Facebook made its IPO.

Facebook CFO David Ebersman, on the call, cautioned that sales growth the rest of the year might not be as strong. Ads debuted in Facebook users' "News Feeds" in Q3 2012, making for "more difficult comparisons" ahead, he said. Facebook doesn't give specific guidance, however.

This year, Facebook started rolling out Facebook Exchange ads. These are targeted ads that are seen as "much more effective" than the ads that long have populated Facebook, wrote analyst Bhatia in a pre-earnings research note. FBX ads get clicked 49 times more often than other Facebook ads, he said.

Analysts feared mobile ads wouldn't take off, RBC Capital Markets analyst Mark Mahaney wrote in a pre-earnings note. But he said RBC's channel checks show Facebook seems to "have addressed" those concerns.

"We have the answer now," Bhatia said Wednesday.

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