Facebook surges as 'mobile first' pays off
Shares in Facebook surged Thursday, adding more than $17 billion to the social network's market cap, after an earnings report proved the company is finally tackling its mobile problems.
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CEO Mark Zuckerberg kicked off Facebook's earnings call talking about the "really good progress" the company made during the second quarter, stressing its shift to a mobile-first business.
"When it comes to mobile, I'm very pleased with the results," he said. "We have more active users on mobile than on the desktop, and soon we'll have more revenue on mobile than on the desktop."
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Facebook is effectively translating mobile growth into profits: In the last quarter, 41 percent of its advertising revenue was from mobile, up from 30 percent in the first quarter. The number blew past expectations that just one-third of Facebook's ad revenue would come from mobile.
Zuckerberg also directly addressed the speculation and concerns that teen use of Facebook is dropping.
"Based on our data, that simply isn't true," he said. "The number of teens using Facebook on a daily and monthly basis has been steady for the past year and a half, and they remain engaged."
Zuckerberg added that when Instagram, which Facebook owns, is included, teen engagement and the percentage of time spent on both platforms is growing quickly. He talked about the company's vision as connecting everyone, helping people better understand the world and assisting in building the knowledge economy.
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Regardless of that vision, the headlines from the earnings release and the conference call were all about the nuts and bolts of Facebook's growth.
Earnings came in better than expected—19 cents in non-GAAP diluted earnings per share, a nickel better than expected, and up from 12 cents in second-quarter 2012.
Revenue grew 53 percent from a year earlier, to $1.81 billion, surpassing the $1.62 expected and much faster than in the first quarter, when revenue grew 38%. Margins were 44%, up one percentage point from a year earlier and about 7 percentage points higher than expected.
User numbers were also stronger than anticipated. The number of daily active users rose 27%, to 699 million, while monthly active users was up 21 percent, to 1.15 billion.
Most notably, though, the number of daily active users accessing Facebook on mobile devices was 469 million, and mobile monthly active users gained 51%, to 819 million.
On the earnings call, Chief Operating Officer Sheryl Sandberg detailed the success of Facebook's ad campaigns, citing a study of 55 campaigns over the past six months. The return on ad spend was more than three times for those that didn't include News Feed ads and 5.9 times for campaigns that did include them.
She added that she is optimistic about growth across Asia and the rest of the world.
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Chief Financial Officer David Ebersman attributed the upside surprise to the company's repositioning itself to "thrive in a mobile world."
In a phone interview immediately after the release, he said, "I think what you're seeing is that News Feed ads really work. They're an effective way for marketers to deliver their message, so they're spending more with us."
Ebersman described it as a "strong quarter across the board" but stressed the mobile as the driver, adding that "we're executing well in mobile and have one of the strongest mobile products."
Looking forward to the second half, he had warned on the earnings call that expenses will grow faster than revenue this year. He also talked about more difficult year-over-year comparisons coming up in the third and fourth quarters, as it was a year ago that the company's News Feed ads began taking off.
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Zuckerberg answered a question about the plan to make money from Instagram, noting that Instagram CEO Kevin Systrom has built it to be a business.
The company is focused on "increasing the footprint of Instagram" but that "over time we'll offer advertising as well," he said.