Facebook Revenue Exceeds Estimates On Mobile Advertising

Facebook Inc. (FB)’s first-quarter sales topped projections, a sign that Chief Executive Officer Mark Zuckerberg is making headway in a drive to make more money from mobile advertising.

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.

Zuckerberg has made software and advertising for smartphones and tablets a priority after investors’ concern 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.”

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

Facebook, based in Menlo Park, California, was little changed in extended trading. The shares declined 1.2 percent to $27.43 at yesterday’s close in New York, leaving them down 28 percent since an initial public offering a year ago.

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.

Advertising Dollars

The stock has climbed 54 percent since tumbling to a record low of $17.73 in September, recouping losses 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.”

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.

Big Investments

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.

“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.

Newer Markets

Instagram users jumped to 100 million, from about 22 million a year earlier when Facebook agreed to buy the photo- sharing service, the company said on the call. Facebook 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 business begin 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.

Source: Bloomberg