The Menlo Park, Calif.-based company reported revenue and earnings for the first quarter on Wednesday that easily beat analysts’ estimates, sending shares up nearly 10% in after-hours trading. Facebook results came after the company reported record revenue and net income in the fourth quarter, despite heavy spending on longer-term projects in virtual reality, artificial intelligence, expanding Internet access globally and hiring thousands of new employees.
Revenue in the first quarter, ending March 31, rose about 51% to $5.38 billion, from $3.54 billion in the same period a year earlier, topping the $5.26 billion expected on average among analysts polled by Yahoo Finance. The gains were driven by Facebook showing more mobile ads at higher prices, especially video ads. Mobile ad revenue represented about 82% of total sales in the latest quarter, up from 73% in the same period a year earlier. In the U.S., Facebook is expected to capture $10.29 billion in display ad revenue this year, or about 31% of total display ad spending in the U.S., according to forecasting firm eMarketer.
The company posted a profit of $1.51 billion, or 52 cents a share, up 195% from a year-earlier profit of $512 million, or 18 cents a share. Excluding certain expenses, Facebook said it would have earned $2.23 billion, or 77 cents a share, easily topping forecasts of 62 cents a share on that basis. (See the full results here.)
RBC Capital Markets analyst Mark Mahaney said in a note before the report that Facebook has ample room to expand its ad business, especially through video ads and new formats. Last year, Facebook said users view 8 billion videos daily. In January, the company said people consumer 100 million hours of video on Facebook every day. The company recently created a dedicated tab for watching videos on the app. Facebook has been successful at showing more ads on its apps without dampening user activity, but will need to closely watch this balance moving forward.
The company should also see more ad revenue growth from Instagram for years to come, thanks in large part to the app’s popularity among millennials. Over the last year, Facebook has ramped up advertising on the app and made it made it possible for both advertisers and users to post videos up to 60 seconds in length. In 2016, Instagram is expected to have mobile ad sales of $1.3 billion in the U.S. and $1.53 billion worldwide, according to forecasting firm eMarketer. Instagram recently announced it plans to organize users’ feeds by an algorithm instead of by its current chronological order.
User growth in the latest quarter was strong. Total monthly active users grew 15% to 1.65 billion, from the same period a year earlier. Before earnings, Mahaney estimated that Facebook would see year-over-year monthly active user growth of 13%, down from 14% in the fourth quarter. Year-over-year, daily active users in the latest quarter increased by 16% to 1.09 billion. Facebook FB +0.13% has been seeing increasing engagement levels across geographies, Mahaney said.
The social network faces increasing competition from younger social players like Snapchat, particularly in the battle for teen users. But user activity on Facebook FB +0.13%’s suite of apps continues to grow. Facebook FB +0.13%-owned messaging app WhatsApp recently reached 1 billion monthly active users, while the standalone app Messenger has 900 million monthly active users. Instagram has more than 400 million monthly active users. Facebook FB +0.13% also reported earlier this year that Groups reached 1 billion users for the first time. Currently about 60 billion messages are exchanged per day on WhatsApp and Messenger, compared to about 20 billion messages today via SMS texts at their peak, the company said. Users create more than 1 billion posts on Facebook per day.
Facebook CEO Mark Zuckerberg laid out the company’s 10-year roadmap at Facebook’s annual F8 developer conference earlier this month. Zuckerberg unveiled new Messenger bot tools for businesses, which make it possible for users to chat with artificially intelligent bots built on the app. Facebook has drastically expanded the functionality of Messenger over the past year. Facebook’s concierge tool “M,” which is available to a small subset of users in the Bay Area, can help users complete a range of tasks, such as finding a stroller to order, purchasing clothing, making restaurant reservations, ordering flowers and retrieving information. Even without “M,” Messenger users can hail Uber and Lyft rides, book flights, make voice and video calls and send stickers, among other features. At F8, Zuckerberg also emphasized the company’s focus on artificial intelligence technology, improving global connectivity, advancing virtual reality (VR), especially social experiences in VR and expanding live and real-time sharing tools. Since Facebook last reported earnings in January, the company rolled out “Emoji Reactions,” its first extension of its trademark “Like” button. Facebook said that in tests the feature boosted users’ engagement with posts
Facebook reported that first-quarter expenses grew 29% from the same period a year earlier to $3.37 billion.
“We had a great start to the year,” Zuckerberg said in Wednesday’s release. “We’re focused on our 10-year roadmap to give everyone in the world the power to share anything they want with anyone.”
Facebook rose .12% to $108.89 during regular trading on Wednesday. The stock is up about 4% this year as of Wednesday’s close.
Source: http://www.forbes.com/sites/kathleenchaykowski/2016/04/27/facebook-shares-spike-on-revenue-earnings-that-beat-estimates/#58c30fe6ad9e
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