January 31, 2013
Facebook Mobile Thrives, Yet Heavy Spending Makes Investors Recoil
Michael Harper for redOrbit.com — Your Universe Online
Last night, Facebook CEO Mark Zuckerberg and friends gave an earnings call to their investors, bragging on their transition into true mobile players while also dashing hopes that their profits may grow in the coming year.
“More people are starting to understand that mobile is a great opportunity for us,” Zuckerberg said in his 7-and-a-half-minute opening statement. “Today, there is no argument. Facebook is a mobile company.”
By the numbers, all this focus on growth has been a boon for the social networking giant which boasts 61% growth year over year and totaled 604 million mobile users in their last quarter. All these eyeballs on mobile screens helped to boost ad revenue, with 14% of their total ad revenue — some $152.6 million — coming solely from mobile ads.
"A couple of quarters ago mobile revenues were zero percent of our ads revenue," said Facebook Chief Financial Officer David Ebersman, speaking to investors. "Now we're up to 23 percent and believe there's a lot of growth ahead of us."
While investors may be surprised by this kind of growth from Facebook ads, it would appear as if no one is more surprised than Zuckerberg himself. As the CEO tells it, he and his team of executives were braced for backlash when they first rolled out ads in the mobile app. These ads appear inline in news feeds, which they feared might annoy more users than it actually did. According to Zuckerberg, users barely noticed.
"One of the big drivers of [mobile revenue] was that as we rolled out ads in news feed, we found that it barely affected the level of engagement on Facebook," Zuckerberg explained. "We thought that we could make this work over time without a big impact if we spent a long time tuning the ads, but the numbers turned out even better than we thought without much tuning."
After rolling out the ads — quietly, so as not to arouse an angry, sleeping giant — Facebook decided to push their luck and begin sending out even more promotions, without any “fine tuning.” Even then, says Zuckerberg, they only noticed a slight 2% decrease in traffic.
Though Facebook was able to demonstrate strong growth in mobile advertising, investors still reacted negatively, bringing the Social Network´s stock down by 3.5 percent in after-hours trading. It remains to be seen whether these investors will stick with Facebook through the coming year.
Zuckerberg also announced rather plainly that the company will not be focused on growing revenue in 2013, saying he expects "expenses to grow at a faster rate than we expect to grow our revenue this year, which means that we aren't operating to maximize our profits this year."
The company spent some $849 million last quarter in costs and expenses, a shocking 67 percent of their year-over-year growth. Both operating margins and profit fell last quarter by 46 percent and 79 percent, respectively. And Zuckerberg and Friends show no sign of slowing their expenses either, meaning that the stock market may remain slightly at odds with the social-media powerhouse over the next 11 months.