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Facebook strikes gold with mobile

25 July 2014, 13:00

San Francisco - Facebook's fast-growing mobile advertising business helped drive a 61% increase in revenue during the second quarter, beating Wall Street's financial targets and sending shares to a record high in after-hours trading on Wednesday.

The world's No.1 internet social network said on Wednesday that it saw increased interest from both advertisers and from users during the second quarter, while the company's profit margins expanded.

Facebook now counts 1.5 million advertising customers and the company's ad business saw strong growth across all of its geographic regions, Chief Operating Officer Sheryl Sandberg told Reuters in an interview on Wednesday.

"We're seeing our existing advertisers spend more and we're seeing new people come on to the platform," Sandberg said.

Investors bid up shares of Facebook roughly 5% to $75.13 in after-hours trading on Wednesday, giving the internet company a roughly $190bn valuation, putting it on par with IBM.

"It might be more expensive from a market cap perspective, but I don't think anyone was expecting this level of profitability," JMP Securities analyst Ronald Josey said.

Facebook's operating margin expanded to 48% of revenue in the second quarter, up from 31% in the year-ago period. Overall revenue of $2.91bn beat the average expectation of $2.81bn, according to analysts polled by Thomson Reuters I/B/E/S.

Facebook executives stressed on a conference call that the company planned to invest aggressively in new projects, such as the Oculus virtual reality headset business that Facebook recently acquired for $2bn.

And executives reiterated past comments that nascent advertising efforts in video and in the Instagram photo-sharing app would not contribute significantly to the top line in the near term.

Nor will Facebook take the "cheap and easy" route of putting ads or payment capabilities within its Messenger app, Facebook Chief Executive Mark Zuckerberg said on a conference call with analysts on Wednesday.

JMP's Josey said that the go-slow approach was not a concern for investors. "There's really no rush to add them because their core business is doing so well," he said.

Facebook said it now counted 1.32 billion monthly users, with roughly 63% accessing the service every day.

Mobile advertising revenue grew 151% year-over-year, accounting for roughly 62% of Facebook's overall ad revenue.

Facebook's newsfeed ads, which inject paid marketing messages straight into a user's stream of news and content, have ignited Facebook's revenue growth and bolstered its stock price during the past year.

Facebook posted $791m in net income, compared with $333m in the second quarter of 2013. Excluding certain items, Facebook said it earned 42 cents a share in the second quarter, surpassing expectations for 32 cents a share.

- Reuters


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