At this point, it would be more surprising if Facebook wasn't making billions from ads.
The social network—which is really now an advertising platform—reported another glowing $2.5 billion quarter, with $2.27 billion of that coming from ad revenue. That’s a 72 percent year-over-year increase. Facebook handily blew past analyst expectations, coming in with profit of 34 cents per share.
Don’t expect those comparisons to dazzle as the year progresses. Soon we’ll be getting to the point where Facebook is stacking impressive numbers against last year’s almost as impressive numbers, instead of against its early days as a public company.
Facebook CEO Mark Zuckerberg said during Wednesday’s earnings call with reporters and analysts that the network is focused on improving the quality of News Feed ads. If you click on an ad because it looks better, Facebook can charge a higher rate, making money even if the number of overall ads you see declines. Facebook now has more than 1 billion mobile monthly active users, which is an impressive number, but mobile users only see News Feed ads in the Facebook app. The right rail ads you see on the Facebook website don’t figure into the mobile experience at all.
That’s why app install ads have figured so prominently in the network’s strategy—though the company declined to break out those numbers—and why Twitter and Google are now clamoring for a piece of that pie.
Mobile came first, now growth
So what comes after mobile ads? Facebook is reportedly gearing up to launch its own ad network at next week’s F8 developers’ conference, though COO Sheryl Sandberg said during the call that a network is in the very early stages of testing and is nowhere near ready to launch. Now that mobile ads make up 59 percent of Facebook’s revenue, up from 30 percent of total ad revenue in the first quarter of 2013, the company has proved it knows what it’s doing. But Facebook is now a conglomerate focused on growing each of its arms into a self-sustaining business.
“There are different stages of maturity for the different things that we’re doing,” Zuckerberg said. “The Facebook app is further along. It’s the core of our business. Then there’s the second set of apps: Messenger, Instagram, and soon WhatsApp. These are apps that are now at a pretty big scale. The immediate priority is going to be getting them to a billion people.”
Zuckerberg is a big believer in services with 1 billion users—it’s the point, he believes, that a company becomes valuable. A billion sets of eyeballs make advertising or other forms of monetization more realistic. That’s why Instagram has been ramping up ads in its stream at a snail’s pace.
“We move slowly and deliberately on monetization,” Facebook COO Sheryl Sandberg said on the same earnings call. “We want to grow [Instagram] slowly and continue the growth on the consumer side.”
Facebook announced on Wednesday that both Messenger and Instagram have crossed the 200 million active user mark, so both apps still have a ways to go before reaching the coveted billion. WhatsApp on Tuesday said it reached 500 million users. (The Oculus VR and WhatsApp deals have yet to close, so they didn’t reflect on Facebook’s financials.)
But then there are Facebook’s other Creative Labs projects, apps like Paper that are still getting off the ground—and “a number of other things we might announce at some point,” Zuck added.
Those apps need to reach 100 million users before Facebook considers them capable of sustaining themselves. (Pro tip: Paper doesn’t have any ads. Yet.)
It’s kind of astonishing that Facebook proper continues to grow its user base every single quarter. There are now 802 million daily active users, and about half of people check Facebook six days a week. That’s pretty remarkable for a 10-year-old network that reporters and analysts have written off several times over its rocky history.
“You would expect naturally that as our community continues to grow and we’re getting into later and later adopters, that the percent of people who use Facebook every day would decrease,” Zuckerberg said. “I’ve predicted for a long time that that number would flatten out. But that number continues to increase, to our surprise and joy.”
The company also announced that chief financial officer David Ebersman is leaving Facebook after five years—a period that included its IPO and transition to a mobile-first media organization. Ebersman will be replaced by former Zynga CFO David Wehner.
This story, "Facebook’s winning streak continues with another $2.5 billion quarter" was originally published by TechHive.