Facebook smashes expectations with huge mobile ad growth

Facebook proved the doubters wrong again with a very strong reported second-quarter profit of $791 million, or 30 cents a share, compared with a profit of $333 million, or 13 cents a share, for the year ago period, an increase of 138%. Adjusted profit was 42 cents a share against expectations of 32 cents a share. Gross margins and operating margins were significantly ahead of expectations This was the fifth quarter in a row that Facebook beat Wall Street forecasts.

Revenue rose to $2.91 billion in the period from $1.81 billion a year ago against expectations of $2.8 billion.  The shares have hit an all time high of $75 in after hours trading last night compared with a low of around $20 in 2012 and the shares have risen around 30% so far this year. The company had its IPO at $38 in May 2012. The IPO may have been botched but those who bought in in the aftermath have been heavily rewarded for their faith in the social networking company.

When Facebook first had its IPO the transition from desktop to mobile usage was the big worry. That worry seems to have been addressed in spades with mobile advertising now making up 62% of the company’s total ad revenue, up from 41% in the same period last year and 59% in the prior quarter. More than 1.5 million businesses are active marketers on Facebook and 30 million businesses use Facebook pages to connect with customers.

Facebook now has 1.32 billion monthly active users, up 14% from the year-earlier period. On average, 829m people used Facebook every day in June, up 19% from a year earlier.

The company accounted for 18% of the $33 billion global mobile advertising market in 2013, a share that is forecast to grow to 22% this year. The total market has grown by 85% in the last year.

The company seems to have plenty of growth strategies up its sleeve but it cautioned many of these would be long term investments. Chief Exeuctive and founder Mark Zuckerberg said Facebook “We had a good second quarter “Our community has continued to grow, and we see a lot of opportunity ahead as we connect the rest of the world” and we will continue “investing heavily and that our costs will increase, and I just want to underscore that, as well, because I expect that to continue to be true. It’s not that we’re necessarily going to go out and have a lot more new strategic priorities, but we expect to go very deep on the priorities that we have to make sure that we completely nail them all, whether it is a 5-year or 10-year time frame.”

With around 20% of the company’s shares, at the current $177 billion market cap, that means Zuckerberg has around $35 billion left in shares! He sold down around 10% in 2013 to cover taxes on options.

Contrarian Investor UK

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