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Facebook beats earnings for 14th straight quarter—it's all about mobile ads

Daniel Roberts
Senior Writer

Facebook reported its 2016 third-quarter earnings on Wednesday, with revenue at $7.1 billion compared to analyst expectations for $6.92 billion, and earnings of $1.09 per share against expectations of 97 cents.

It was the 14th straight quarter in which the social media giant beat expectations. Facebook has only missed earnings one time since it went public in 2012. The stock (FB) is up 22% this year and 17% in the past 12 months.

So, what is Facebook doing so right? The biggest story with the company right now is mobile advertising. Its mobile ad business brought in a record $5.7 billion in the third quarter, which Re/code points out is more than Facebook’s entire revenue was one year ago, in the third quarter of 2015.

Mobile ads made up 84% of Facebook’s overall $6.8 billion in ad revenue in the third quarter, and ad revenue grew in every geographical region. It grew the most in the US and Canada. (See the below chart.) And most of Facebook’s growth within mobile ads is in video ads.

Facebook monthly ad revenue

And Facebook is starting to see more success with advertising on Instagram, which has more than 500 million monthly active users, 300 million of them daily users. While Facebook has 4 million different advertisers, Instagram now has 500,000. Facebook company does not yet break out revenue for Instagram, but a recent Credit Suisse report suggests that ad revenue from Instagram is accelerating, and predicts Instagram will bring in $3.2 billion in revenue this year.

This month, Facebook began testing a shopping function on Instagram where users can tap a retail item (like a table or pair of jeans) to buy it from the brand. (See the above Yahoo Finance video.) Warby Parker and Levi’s are among the brands pilot testing the function, which Instagram director of market operations Jim Squires told Business Insider “was launched to reflect the way people are already using the app.” In June, Instagram also rolled out business profiles; Facebook now says 1.5m businesses are using them.

12 years after its launch and four years after it hit the public market, Facebook is still growing its user base every quarter. The company now has 1.78 billion monthly active users, up from 1.71 billion last quarter, and 1.66 billion of them access the site on mobile. (See below chart.)

Facebook mobile monthly active users

Facebook has also gone big on bots—conversational chat robots inside its Facebook Messenger app that exist to offer services to users without leaving the app. CEO Mark Zuckerberg said on the earnings call that there are now 33,000 bots inside Messenger. Facebook’s bet on bots has already influenced big companies like Bank of America and MasterCard to launch their own bots.

Still, Facebook struggles with growing pains. COO Sheryl Sandberg recently refused to classify it as a media company, saying instead that Facebook is “a platform for all ideas.”

But with more and more Americans getting their news via Facebook (66% of its users now get their news from the site, according to Pew Research Center), the company has to reckon with its role, even if it is merely distributing news and not creating it. It is both a tech platform and a media company (and wants to be a commerce hub, a bank, and a messaging platform) and must adapt to the challenges (often ethical) that come with that dual identity.

Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.

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