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Mobile, Video Pay Off For Facebook

Posted on Monday, May 2nd 2016

According to eMarketer, the global mobile advertising market is expected to cross $100 billion in 2016 and account for more than 50% of all digital ad expenditure. By 2019, it is expected to be close to $200 billion and account for 70% digital ad spending. Social media giant Facebook (NASDAQ: FB) is seeing impressive growth in this high-growth market.

Facebook’s Financials

For the first quarter, Facebook’s revenues grew 52% over the year to $5.4 billion, ahead of the Street’s forecast of $5.26 billion. Net income was $1.51 billion or $0.52 per share, up a whopping 195%. Non GAAP EPS was $0.77, beating analyst estimates of $0.62.

In Q1, the average price per ad increased 5%, while total ad impressions increased 50%. This also resulted in a 57% growth in advertising revenues to $5.2 billion. Mobile advertising accounted for 82% of advertising revenue, up from 73% a year ago. Payments and other fees declined 20% to $181 million.

By region, North America and Asia-Pacific were the fastest-growing regions for advertising revenue with growth of 64% and 62%, respectively. Europe and rest of world grew more slowly, at 49% and 35%, respectively.

Daily active users (DAUs) increased 16% to 1.09 billion on average for March 2016. Mobile DAUs grew 24% to 989 million. It now has 1.65 billion monthly active users (MAU). Mobile MAUs increased 21% to 1.51 billion.

Facebook reported that every month about 900 million people use Messenger, 1 billion people use WhatsApp, and 400 million people use Instagram. People send around 60 billion messages every day on WhatsApp and Messenger while 1 billion posts are created every day on Facebook. More than 1 billion people use Facebook Groups. More than 3 million businesses use its advertising products every month and over 200,000 businesses use Instagram for advertising. A significant number of these advertisers are small and medium businesses. Some of its popular products are Lead Ads, Slideshow, and Dynamic Product Ads.

Video Drives Shift to Mobile

One of the main drivers of the consumer shift to mobile has been its focus on online videos. Facebook has ramped up advertising on the app over the last year and made it possible for both advertisers and users to post videos up to 60 seconds in length. As a result, people have been sharing and creating nearly three times more video on Facebook than they were a year ago. The time people spend watching videos on Instagram has increased by more than 40% over the past six months.

To help marketers optimize their video ads, Facebook has introduced Auto Captions to generate captions for video ads, which it claims increases the view time by 12%. It has also introduced new ad formats like Canvas ads, which showcase products by combining video images and call-to-action buttons.

Facebook has also started pushing articles and videos hosted on its server that also show its ads. This also cuts out outside links to videos from competitors YouTube and Vimeo. People now spend more time on Facebook, Messenger, and Instagram—close to 50 minutes a day.

Facebook’s VR Efforts

Facebook has also started shipping Gear VR late last year, but the response has been lukewarm. It now has hundreds of apps built specifically for Gear, and people have watched more than 2 million hours of video on it. In Q1, it also started shipping Oculus Rift. It has more than 50 games and apps built for Rift.

While talking about his 10-year roadmap for the company during the earnings call, CEO Mark Zuckerberg said,

“A lot of what we’re building today in areas like connectivity, artificial intelligence, and virtual and augmented reality may not pay off for years, but they’re important to our mission of connecting the world. And I’m committed to seeing this mission through and to leading Facebook there over the long term.”

Facebook also announced a proposal for a three-for-one stock split to create a new class of non-voting shares. For each share they hold, Facebook shareholders will be given two additional non-voting shares. This will essentially allow Mark Zuckerberg to sell the non-voting shares without losing any voting control.

The market is pleased with Facebook’s performance. While the stock split is a move that could irk investors in the future, right now nobody seems to be complaining. Its stock is trading at $117.58 with a market cap of $344.9 billion. It hit a 52-week high of $120.79 following its results and added more than $30 billion to its market cap.

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