Facebook's Q3: Sustaining Ad Revenue Growth, And Seizing On Ad Tech

facebook-earnings-q3-2014Facebook's Q3 ad revenue grew 64% in the third quarter, beating Wall Street expectations during a period when the company rapidly pressed its advantage in advertising technology.

Between July 1 and September 30, Facebook announced plans to acquire video sell-side platform LiveRail, ramped up volume on its Facebook Audience Network,  and rolled out a cross-device identity solution baked into its rebuilt Atlas ad server.

None of those investments, with the possible exception of FAN, had a major impact on Facebook's revenue during the period. Similarly, Facebook has yet to scale auto-play video ads in the News Feed. So it would seem the company has considerable room to run from an ad revenue standpoint.

Chief Operating Officer Sheryl Sandberg emphasized that Facebook is playing a long game in ad tech.

"We recognize that by staffing engineers in these strategic ad tech areas, we forego shorter term product improvements which would generate revenue more quickly. We believe this is the right decision,' she said.

Sandberg said the company's interest in ad tech was driven by a need for better tools in mobile.

"We're investing in ad tech for a simple reason. Consumers are shifting quickly to mobile and the advertising industry is not keeping up," she said. "Advertisers haven't yet had an effective way to serve ads and measure their returns on mobile. Current solutions work well for one person with one device, especially a PC, and for sales that happen online. But today people often own many devices and still make many purchases in physical stores."

Mobile made up 66% of Facebook's ad revenue during the quarter, up from 62% in the previous quarter and 49% one year ago. The company's monthly active users (MAUs) continue to grow at 14% -- the same rate it did in the year ago period. Mobile MAU's are growing faster, at 29%.

Facebook's average price per ad served increased 247% compared to last year, while total ad impressions declined 56%. CFO David Wehne chalked up the decline in ad load to Facebook's decision to serve fewer but larger ads in the right hand column on its desktop experience.

Wehne warned that revenue growth would decelerate in the current quarter, Q4 2014, as Facebook ticks off a year since the launch of ads in the News Feed. And it said expenses would rise dramatically in 2015, as it invests across the business in a bid to capitalize on long-term growth opportunities. That guidance may have been a reason the stock fell approximately 10% after market close.

 

FB-adrevenue-2014

A few more details rom the earnings release below.

  • Revenue from advertising was $2.96 billion, a 64% increase from the same quarter last year. Excluding the impact of year-over-year changes in foreign exchange rates, revenue from advertising would have increased by 63%.
  • Mobile advertising revenue represented approximately 66% of advertising revenue for the third quarter of 2014, up from approximately 49% of advertising revenue in the third quarter of 2013.
  • Daily active users (DAUs) were 864 million on average for September 2014, an increase of 19% year-over-year.
  • Mobile DAUs were 703 million on average for September 2014, an increase of 39% year-over-year.
  • Monthly active users (MAUs) were 1.35 billion as of September 30, 2014, an increase of 14% year-over-year.
  • Mobile MAUs were 1.12 billion as of September 30, 2014, an increase of 29% year-over-year.

 

 

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