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Facebook Riding High on Mobile

Posted on Thursday, May 1st 2014

According to eMarketer, social giant Facebook’s worldwide mobile ad share during the current year is projected to rise to 21.7% compared with 17.5% a year ago.  The company is eating into Google’s share as it is projected to slip slowly from 49.3% a year ago to 46.8% this year. Overall, Facebook accounted for 7% share of the digital ad share in the US last year. eMarketer expects their share to climb to 8% this year. Google, meanwhile, is expected to remain relatively flat at 40% market share.

Facebook’s Financials
Facebook’s ability to monetize on mobile helped deliver strong results for the recently ended quarter as well. Q1 revenues grew 72% over the year to $2.5 billion, ahead of market expectations of $2.4 billion. EPS of $0.34 was significantly ahead of the Street’s target of $0.24 for the quarter.

By segment, revenues from advertising grew 82% to $2.27 billion and payments and other fees revenues grew 11% to $237 million. Total monthly active users grew 15% to 1.28 billion of which 63% are active daily. Mobile usage continued to improve with mobile users recording a 34% growth over the year to cross the milestone of 1 billion users. Besides adding users, Facebook has also figured the trick to improving monetization for these users. Mobile advertising accounted for 59% of the total ad revenues for the quarter, compared with 53% share a quarter ago. Overall, ad impressions fell 17% over the year due to lower ad volumes on mobile devices, but average effective price per ad grew 118.0% as Facebook continued to see strong growth in the high-priced newsfeed and App Install ads. Average revenue per user increased 48% to $2.00.

Facebook’s Mobile Expansion
As part of the efforts to continue to grow mobile, Facebook is now testing a mobile advertising network. Currently, the platform is in early stages of testing, but once released, the network will enable Facebook to reach a wider network of mobile device users. Facebook is expected to share more details of the network in the soon to be held developer conference. Additionally, they are also planning to release new apps for sharing content among users. They are pushing for Messenger to be a standalone app by allowing people to access private conversations only through the app. Messenger is expected to have nearly 200 million users. The app has also enabled photo and video sharing recently and like other mobile messengers, has become a revenue generator by selling sticker packs.

Facebook believes that there is more value in creating superior apps that are focused on a single purpose alone. Following that reasoning, they released the Paper app that offers a more creative look for the traditional news feed and have let Instagram remain an independent photo sharing app. Instagram too boasts of a user base of more than 200 million compared with 20 million when Facebook had acquired them. Similarly, the $19 billion app WhatsApp also continues to operate as an independent app.

Facebook’s Journalism Foray
Recently, Facebook also announced the release of a new service for journalists. The FB Newswire service is aimed at journalists and will simplify the effort of finding, sharing, and embedding content from their site. The service will be able to aggregate publicly shared content posted by users and media organizations on Facebook, including photos and videos along with status updates of public persona and events. Analysts believe that this may be Facebook’s attempt to tackle Twitter, which has become the place to go to for real-time news feed on global events. But Facebook has gone a little further by using their partnership with social news service provider Storyful to verify the user generated content.

Facebook’s Acquisitions
Facebook continued to acquire during the quarter. Earlier last quarter, they announced the acquisition of Oculus VR, a virtual reality hardware manufacturer, for an estimated $2 billion. Oculus is becoming known for their virtual reality headset Rift, which is aimed at the gaming industry. Rift is yet to hit the market, but is available on pre-order for $350 a unit. Rift headset lets the user enter into an immersive computer-generated environment for their games or movie scenes making them feel as if they are in a different place altogether. Initially, Oculus will continue to focus on the gaming segment, but later on Facebook wants to expand this service to additional areas such as enabling users to view courtside games or by enhancing video chat services.

Last week, Facebook also announced the acquisition of the developer of fitness tracker app Moves for an undisclosed sum. Finland-based company ProtoGeo Oy launched Moves in 2013. The Android and iOS app has been downloaded more than 4 million times since launch. Instead of using specific equipment such as fitness watcher or bands to track the user’s exercise regimen, Moves uses the sensors on the smartphone to track the user’s walking, running, and biking activities during the day for further analysis. More importantly for Facebook, Moves also keeps a track of the user’s route on a map. Facebook could use that for more localized service offerings, but for now, they have decided not to use this data.

Facebook’s stock is trading at $58.15 with a market capitalization of $147.99 billion. It touched a record high of $72.59 in March this year, but has fallen since the announcement of the Oculus VR acquisition. The market is not entirely pleased with the exorbitant valuations that company is willing to pay for acquiring relatively immature companies.

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