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Facebook Revenue Exceeds Estimates on Mobile Advertising

By Brian Womack
May 02, 2013 2:17 PM EDT 13 Comments
A Facebook Inc. employee holds a phone running the new Home program during an event at the company's headquarters in Menlo Park, California, on April 4, 2013.
Photographer: David Paul Morris/Bloomberg
A Facebook Inc. employee holds a phone running the new Home program during an event at the company's headquarters in Menlo Park, California, on April 4, 2013.

Facebook Inc. (FB) rose after the social-networking company’s first-quarter sales topped estimates, a sign that Chief Executive Officer Mark Zuckerberg is gaining ground in his effort to make more money from mobile advertising.

Shares of the Menlo Park, California-based company climbed 5.6 percent to $28.96 at 2:13 p.m. in New York, the highest price since Feb. 20. Through yesterday, the stock had declined 28 percent since its initial public offering on May 17, 2012, yet had gained 55 percent since touching a low in September.

Zuckerberg has focused on software and advertising for smartphones and tablets after concern about Facebook’s mobile strategy weighed on shares in the four months following its market debut. Since then, investments designed to attract users on handheld devices and advertisers have started paying off, according to Michael Pachter, an analyst at Wedbush Securities Inc. in Los Angeles.

“They’re monetizing it better and better and better,” said Pachter, who rates the shares outperform. “They’re making progress -- and dramatic progress.”

First-quarter sales rose 38 percent to $1.46 billion, Facebook said in a statement yesterday. That compares with the average analysts’ estimate of $1.44 billion, according to data compiled by Bloomberg. Profit excluding certain items was 12 cents a share, compared with an average prediction of 13 cents.

Advertising Revenue

Mobile made up about 30 percent of advertising revenue in the first quarter, expanding from 23 percent in the previous period. Pachter had predicted about 25 percent.

Net income attributable to shareholders rose 58 percent to $217 million, compared with $137 million a year earlier. Operating costs rose 60 percent to $1.09 billion, as Facebook added more staff and poured money into computers and software.

Facebook’s shares have recovered since tumbling to a record low of $17.73 in September, recouping losses as Zuckerberg and other executives fueled optimism that they’d do a better job capitalizing on the shift to mobile devices. So far this year, Facebook has introduced new software for smartphones, added tools for marketers and revamped News Feed, the first thing members see when logging onto the network of more than 1 billion.

“We’re pleased with our progress in product development and with our financial results as well,” David Ebersman, Facebook’s chief financial officer, said in an interview. “Mobile has the opportunity to be huge for Facebook if we execute well and continue to attract mobile users and develop valuable mobile monetization products.”

New Products

Mobile ads have taken on added importance for the company as more users wield smartphones and tablets rather than personal computers to check on friends’ newest photos and status updates.

Facebook is concentrating on new products to get users to spend more time using its service on mobile devices. Last month, the company introduced Home, software that integrates features more deeply into some smartphones using Google Inc. (GOOG)’s Android operating system. The company also made improvements to a tool used by businesses to reach consumers using mobile devices.

“We’re picking these big investments because I think these are important areas for us to focus on,” Zuckerberg said on a conference call.

Facebook is projected to grab 13 percent of U.S. mobile-ad dollars this year, up from 9.5 percent in 2012, according to EMarketer Inc. The total market will reach $7.29 billion in 2013, up 77 percent from 2012, the research firm said.

Mobile ‘Highlight’

“Overall, the company is performing well, with mobile being the highlight,” said Jordan Rohan, an analyst at Stifel Nicolaus & Co. in New York who rates the shares a hold.

The number of users on Facebook rose 23 percent to 1.11 billion from a year earlier, the company said in the statement. Mobile users grew 54 percent to 751 million, making up 68 percent of the total.

Users of Facebook’s Instagram photo-sharing application jumped to 100 million, from about 22 million a year earlier, the company said on the call. Facebook, which acquired the app last year, will continue to focus on building Instagram and its community, rather than seeking to make money from the application, Zuckerberg said on the call.

“I am really optimistic about the business opportunity there, too,” Zuckerberg said.

Facebook will also be able to generate more advertising growth from small businesses in newer markets, Chief Operating Officer Sheryl Sandberg said. Newer formats are making it easier for time-strapped business owners to buy promotions, she said. Many start off by building their profile on Facebook Pages and connecting to users.

“With small businesses, we have an actually really deep competitive advantage,” she said. “With almost no direct effort, we have 16 million small businesses actively using Facebook Pages.”

Chief Accounting Officer David Spillane is leaving, Facebook said in a separate filing yesterday. He will be succeeded by Jas Athwal as of May 10, the company said.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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