By Deepa Seetharaman
Facebook Inc. reinforced its standing as a mobile-advertising
powerhouse, nearly tripling its quarterly profit at a time when its
Silicon Valley rivals are underperforming.
The social network on Wednesday said advertising revenue jumped
57% in the first quarter to $5.2 billion from $3.3 billion. Mobile
ads, which command a higher price than those shown on desktops,
accounted for roughly four-fifths of that revenue.
"Businesses are no longer asking if they should market on
mobile, they're asking how," Chief Operating Officer Sheryl
Sandberg said in an interview. "This is a shift that we think we're
very well-positioned to take advantage of and build on."
Facebook's user ranks grew to 1.65 billion from 1.44 billion in
the first quarter last year. The company derived more revenue from
each of them -- an average of $3.32, compared with $2.50 a year
earlier.
The stronger than expected results drove Facebook shares up 8.8%
in after-hours trading, lifting the company's market valuation
above $330 billion.
Facebook also said its board had proposed creating a new class
of nonvoting shares, designed to further cement founder and Chief
Executive Mark Zuckerberg's control over the company. The new Class
C shares would have the same economic rights as other shares but
wouldn't have voting rights, allowing Facebook to distribute them
to employees and through acquisitions without diluting Mr.
Zuckerberg's control. Google -- now Alphabet Inc. -- made a similar
move in 2014.
Facebook's results bucked a trend of disappointing results from
other tech companies. Tuesday, Apple Inc. reported its first
quarterly drop in revenue in 13 years, while Twitter Inc.'s
first-quarter revenue fell short of expectations. Alphabet missed
analysts' expectations last week.
The results offered further evidence that Facebook is gaining
traction with advertisers at a time when many are shifting funds
from their print and television budgets to digital offerings. Ad
companies, including Interpublic Group's Magna Global, project
digital media will surpass television as the world's largest
advertising medium as soon as next year.
Facebook is expected to garner about 12% of the $186.8 billion
global digital-advertising market this year, up from 10.7% last
year and 8.6% in 2014, according to data firm eMarketer. By
contrast, Google's share is projected to decline to 31% from 33% in
2015 and 35% two years ago.
Ms. Sandberg said Facebook's revenue growth was "broad-based"
but highlighted video ads as a strong spot. Not all video ad
revenue is "incremental" because such ads take the place of others
in the Facebook news feed, she added.
For the quarter, Facebook reported net profit of $1.51 billion,
or 52 cents a share -- almost triple the $512 million, or 18 cents
a share, it earned in the same period a year earlier.
Excluding certain expenses, the company said it would have
earned 77 cents a share, up from 42 cents a year earlier. Analysts
polled by Thomson Reuters were expecting 62 cents a share on that
basis.
Revenue rose 52% to $5.38 billion from $3.54 billion. Analysts
expected revenue of $5.26 billion.
Facebook said average ad prices increased 5% in the first
quarter, as advertisers bought more mobile ads.
Marketing-technology company Kenshoo said mobile ads cost about
$4.39 per 1,000 impressions in the first quarter, more than double
the $2.17 cost on desktop.
Over the past year, Facebook has launched several new ad types,
such as dynamic product ads, which allow users to scroll through
items in a company's product catalog. It also made it easier for
companies to buy ads on its Instagram image-sharing network; those
ads are inserted in users' feeds. In a note, Piper Jaffray analyst
Gene Munster said Instagram ads accounted for the increased share
of revenue on mobile devices.
The company is "definitely" showing more ads to users compared
with a few years ago, Chief Financial Officer David Wehner told
investors on a conference call, without sharing a specific figure.
Mr. Wehner said Facebook's ability to target ads allowed the
company to show more ads without frustrating users.
Video ads gained momentum as well. Facebook has been vying for a
piece of television ad budgets by promoting high-quality video
content in its news feed. Video ads on Facebook cost about $4 per
1,000 views during the first quarter, up from $3.44 a year ago and
higher than the $3.14 average across Facebook, according to data
analyzed by Kenshoo.
Mr. Wehner offered a cautionary note on the conference call,
warning that growth rates may slow later in the year. "We expect
that the main drivers of advertising revenue growth will continue
throughout 2016, but we will face tougher comparable as the year
progresses given the accelerating ad revenue growth we experienced
throughout 2015," he said.
Facebook's spending on capital projects, including new data
centers in Texas and Ireland, more than doubled, to $1.1 billion in
the quarter. Mr. Wehner said capital expenditures this year will be
"at the high end" of Facebook's projected $4 billion to $4.5
billion range.
Executives also faced questions about the way people use the
social network. Facebook has been trying to encourage users to
share more personal content, with news feed prompts and tools to
help users create content, such as a potential camera app under
development. Mr. Zuckerberg said overall sharing as well as sharing
per user was up across Facebook and its suite of apps, but the way
users are sharing has changed. Some of that stems from users' shift
to mobile phones from desktops, he said. For example, people tend
to share more videos from their mobile devices.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com
(END) Dow Jones Newswires
April 27, 2016 19:46 ET (23:46 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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