Facebook's Q2 Brings Big Jump In Mobile Ad Revenue

fb-earnsFacebook reported Q2 earnings after business close today, and its ad revenue picture is rosy, especially from a mobile standpoint. Revenue from ads grew 61% year over year to $1.6 billion, of which mobile contributed 41%, or $656 million.  That's a striking increase from Q1, when mobile contributed 30% of total ad revenue.

During the quarter Facebook opened up newsfeed inventory to FBX partners, which could be a stepping stone to increasing mobile yield further -- since newsfeed ad space is its primary channel for mobile monetization.

(See the release. And read the earnings slides.)

On the analyst call, COO Sheryl Sandberg threw a half-pail of cold water on the Facebook Exchange. Turns out FBX sales haven't taken over the monetization machine, she says.

"One thing worth noting is that FBX is actually a very small part of our business," Sandberg said, suggesting there has been some misperception about its size. Or could it be a smokescreen, as Facebook sees Twitter and other rivals sniffing around RTB?

Custom Audiences on the other hand is growing like gangbusters. The number of advertisers using the database-matching product doubled in the second quarter relative to Q1. CRM for the win!

She emphasized total automation of ad sales through the Preferred Marketing Developers and self-serve channels is not in the cards. Facebook will continue to deploy a robust army of feet on the street to supplement the work of PMDs. The company has 40 sales offices globally.

"We are expanding both our direct selling efforts, as well as the third parties we work with. And we think having a healthy and growing ecosystem on both sides is really good for our business."

Many analysts wanted to talk about mobile growth, and Facebook was glad to oblige. The story here is very strong. Facebook now has more unique daily users in the mobile channel than in desktop, and soon it will draw more revenue through mobile than through the desktop channel, CEO Mark Zuckerberg said.

Improving ad quality and relevance are both key areas of focus, Zuckerberg and Sandberg said. Mobile ad placements now account for 5% of all stories in the mobile news feed, and according to Zuck recent internal studies suggest people are noticing the ads more.

"We're going to invest more on improving quality. We believe this will help us improve the quality of the ads we show by creating a more competitive auction," he said.

Speaking of ad auctions, Facebook is also reaping the fruits of a move last year to lower the bid floor globally. Not surprisingly, this has created more impact in developing countries where ad demand is lower, increasing bid volume and allowing Facebook to serve more ads.

David Ebersman chimed in noting Q2 was Facebook's strongest quarter in terms of ad revenue growth since 3Q 2011. Notably, that growth was global and heavily driven by strong performance of News Feed ads, which have driven high engagement and click rates. The average price per ad was up 13%.

Indeed, as its investments in FBX, Custom Audiences, Partner Categories, Mobile App Install Ads and other products came together, Facebook has seen a broad increase in demand flowing into its ad platform.

Ebersman says, "More Feed-eligible demand was a big part of the story."

With more ads flowing through its system, he says, "You might have assumed price would fall." Not so, prices increased.

A few other highlights:

-Mobile App Install Ads. Revenue from these placements is small but growing rapidly. Sandberg: "It's basically a totally new market."

-Monetizing Instagram. Zuck says "[Founder Kevin Systrom] has always been clear that we're building instagram to be a business. We expect that over time we're going to generate a lot of profit, probably through advertising." But! "We think the right focus for now is to… increase the footprint."

-Teen attrition. Based on the data Zuck sees, it's not true that fewer teens are using Facebook less. "We believe the number of teens using FB on both daily and monthly has been steady. Instagram is growing quickly as well. Combine the two services and we believe engagement and share of time spent are likely growing quickly."

-Video advertising. Sandberg: "We have a current video ad product because marketers can embed a video in a page post. The demand to do more on video on Facebook is there. We have nothing new to announce."

 

 

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