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Thursday, 24 July 2014 12:07

Facebook wows Wall Street with massive revenue Featured

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Social media giant Facebook has flexed its financial muscles in a earnings call overnight, demonstrating to Wall Street investors and critics alike that it's well-positioned in the mobile advertising market and showing no signs of slowing down.

Zuckerberg and co have posted significant growth in revenue and profits for the second quarter, largely thanks to extremely strong performance in the mobile ad department, with over a billion people worldwide using Facebook on their phone.

Facebook posted revenue of $2.91 billion for the quarter, beating Wall Street's estimates of $2.81 billion, and up 61% from $1.8 billion in the second quarter of 2013.

The good news kept coming, with adjusted earnings per share landing at 42 cents in the quarter, higher than the 32 cents a share that analysts had been expecting.

Advertising revenue was $2.68 billion for the quarter- an increase of 67% from the same quarter the year before. Mobile accounted for 62% of that revenue, up from approximately 41% of advertising revenue in the second quarter of 2013.

Revenue from payments and fees for the quarter was $234 million, a 9% increase year on year.

Daily active users (DAUs) were 829 million on average, an increase of 19% year-over-year, while mobile DAUs were 654 million on average, an increase of 39%. Monthly active users (MAUs) were 1.32 billion on average, an increase of 14% year-over-year, while mobile MAUs were 1.07 billion on average, an increase of 31%.

Shares of Facebook are up 5%, in after-hours trading, while for the year, the stock is up roughly 30%, rising from $54.83 to $71.29. It has also gained 330% from a year ago, when it was trading at $26.10 a share.

Mobile devices accounted for nearly two-thirds of Facebook’s revenue, a demonstration the company has got its mobile strategy right on track.

“These are just phenomenal numbers,” said Ben Schachter, an Internet analyst with Macquarie Capital. “The core business is so strong that it’s buying them time to be more conservative and deliberate in bringing out new products.”

Zuckerberg used the call to talk about the company's future strategy, and that it was playing a long game - spending heavily for years on newer services like private messaging, virtual reality and Facebook search which wouldn't make money for potentially several years.

“We think it is going to be years of work before those are huge businesses for us,” the young CEO said.

“I really can’t underscore this enough that we have a lot of work to do. We could take the cheap and easy approach and put ads in and do payments and make money in the short-term, but we’re not going to do that.”

Zuckerberg did talk up Oculus, the team behind virtual reality headset Oculus Rift that Facebook acquired for $2 billion in a deal that closed this week.

“We can help define what the next generation of computing is going to be. Virtual reality, augmented reality, will play into this in an important way,” he said.

“Our community has continued to grow, and we see a lot of opportunity ahead as we connect the rest of the world."

"We've said in a number of comments that we think some of these newer initatives are going to ramp over time. We really do mean that, and we're serious about doing this the right way and building up these ecosystems.

"And I think for some of these other apps, we're just going to build all the infrasturure that we need to make it something thats scalable over time, rather than trying to have this be an impact you'll notice over the next short term period of time."

Richard Greenfield, an analyst with BTIG Research, said that investors would be patient with the company because it was trying to reinvent display advertising, tackling Google head-to-head.

“They are clearly focusing on the quality of the creative, getting more into video, doing things like Instagram ads, that have real emotional connection with users,” he said.

“I think they’re just trying to temper expectations so that expectations don’t get ahead of themselves.”

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