It's official. Facebook is serious about making money, and its turning its mobile problem—mobile growth was eating into margins—into an opportunity. CEO Mark Zuckerberg kicked off the call by saying he wants to "dispel the myth that Facebook can't make money on mobile," saying "people underestimate how good mobile is for Facebook." Why? COO Sheryl Sandberg said mobile ads work better than desktop ads, and Zuckerberg says people on mobile use Facebook more often. So, bottom line, Zuckerberg says "We'll monetize better on mobile than on the desktop."
Nicholas Kamm | AFP | Getty Images
Facebook stock soared on this mobile strength, (Click here to get the latest quotes for Facebook) and the fact that advertising revenue is accelerating again, growing 36 percent over a year ago, after growing just 28 percent in the second quarter. The stock flew more than 10 percent higher after hours. Earnings per share came in at 12 cents, a penny better than expected, while revenue grew 32 percent to $1.26 billion. Operating margins declined as Facebook invested in growth, namely hiring employees and spending $171 million on property and equipment, and covering tax payments.
(Read More: Facebook Revenue Jumps 32% Amid Gains in Mobile.)
After launching mobile ads just a few months ago, they now comprise 14 percent of all ad revenue, that's $153 million in the quarter. Thanks to this new mobile advertising, Facebook's advertising revenue is accelerating sequentially, growing 36 percent over last year, after growing just 28 percent in the second quarter over a year earlier. Facebook now has the second-biggest mobile ad business in the world, after only Google . If it maintains its current pace, it's looking at a $610 million annual mobile ad business. But because Zuckerberg and Sandberg say this is just the beginning for mobile ads, we'll likely see that accelerate.
(Read More: Facebook's New Retail Push Allows Users to Hit 'Buy'.)
Sandberg stressed that the new Facebook exchange is working, and that combined with new targeting tools, advertisers are seeing "significantly increased efficiency." Sandberg rattled through a number of examples with as much as 10 times the return on ad spend compared to other platforms. And it seems to be improving the company's relationship with Madison Avenue, Sanberg noting "new clients and increased budgets."
(Read More: Where Facebook Is Looking to Grow: COO Sheryl Sandberg.)
Bolstered by mobile and more targeted ads, Facebook's average revenue per user grew four percent to was $1.25, a penny higher than Wall Street expected, according to Street Account. Facebook's average *advertising* revenue per user came in a full nickel higher than expected, at $1.08. Driving that upside was a 7 percent increase in ad prices worldwide. In the US and Canada ad prices increased as much as 20 percent, though they declined in Europe.
(Read More: Facebook Hits Milestone, but Real News Is in Mobile.)
While ads grew, payments suffered, revenue declining 9 percent from the prior quarter, largely on Zynga's struggles. The social game maker, which today announced layoffs and cutbacks, generated 20 percent less payments revenue than it did a year earlier. Facebook pointed out that on the upside, its payments revenue is diversifying, and revenue from game makers outside Zynga grew 40 percent.
As for other new revenue streams, like 'gifts,' Zuckerberg didn't give any details, just saying that he's "excited" about the launch and the "Opportunity to bring commerce to Facebook over time." He said he sees gifts as a key gateway to understanding how people buy things. It's certainly a way to get credit card numbers into the system as it builds on the way people wish each other Happy Birthday.
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