Mobile ad sales drive Facebook shares to record high

Facebook Inc.’s investment in mobile continues to pay dividends – literally, as the social media giant’s latest quarterly results pushed shares to a record high on Wednesday.

In fact, Facebook COO Sheryl Sandberg told investors during a July 26 earnings call, mobile now accounts for 87 per cent of the company’s total ad revenue – a three per cent increase over last year’s already-impressive rates – and grew by 53 per cent year-over-year to $8 billion (all figures USD).

Ad revenue for the second quarter grew to $9.2 billion – a 47 per cent gain over last year – rising by 45 per cent year-over-year in the U.S. and Canada alone. (Meanwhile, the company’s total global revenue was $9.3 billion, representing a yearly gain of 45 per cent.)

According to Reuters the company’s shares rose accordingly, and as of Wednesday night had climbed nearly 44 per cent this year.

Users are increasingly mobile, and Facebook wants to help advertisers reach them, COO Sheryl Sandberg said during a call Wednesday.

“As the first half of 2017 comes to a close, we feel good about the progress we’re making,” Sandberg told investors and analysts. “As marketers build more meaningful connections with people on mobile, we help them grow their businesses, which in turn grows ours.”

Even the company’s non-mobile metrics were stellar: According to CFO David Wehner, 1.32 billion people visited Facebook on an average day in June, a gain of 17 per cent over last year. Desktop ad revenue grew by 17 per cent as well, despite ongoing decline in desktop use (which, Wehner euphemistically noted, was primarily the result of the company’s efforts “to limit the impact of ad blocking technologies” – that is, paying ad blocker developers to let Facebook bypass their programs).

But there was no mistaking the fact that Facebook plans to continue placing mobile front and centre: Sandberg said the company’s three-pronged strategy is to build meaningful connections between people and businesses by helping businesses leverage the power of mobile; develop innovative ad products; and make ads more relevant and effective.

Users are mobile, so businesses should be too

“People are rapidly increasing the time they spend on mobile, and businesses know they need to be where consumers are,” Sandberg said, noting that more than 70 million businesses now have Facebook pages, and more than 15 million have business profiles on Instagram.

Key to the company’s mobile strategy, Sandberg said, is video – hardly a new frontier for online advertisers, but one that has different connotations on Facebook.

“Video on Facebook is personal, so it’s around connections, conversations, and communities,” she said. “It creates opportunities for businesses to reach people in new and creative ways.”

It’s also consumed more quickly, she noted, citing juice company Tropicana’s recent experience testing six-second, 15-second, and 30-second video ads and discovering the shorter ads posted higher brand metrics across the board.

Another priority for the company is developing innovative ad products, Sandberg said, such as Facebook’s Dynamic Ads platform, which helps retailers and e-commerce firms promote their products across multiple devices and programs, including ads tailored to, say, Facebook users who have searched for flights or Instagram users who haven’t.

Facebook’s third key strategy is making ads more relevant and effective, by developing better metrics and smarter targeting features across Facebook, Instagram, and Audience Network, the company’s mobile advertising network.

For example, during its most recent quarter the company introduced value optimization, which helps businesses show ads to users most likely to spend based on their previous purchasing behaviour, and Lookalike Audiences, which uses machine learning to help marketers reach people similar to their most valuable customers.

“Marketers of all sizes are increasingly following our best practices, like optimizing their ads to drive real-world outcomes rather than focusing on proxy metrics such as page likes and video views,” Sandberg said. “53 per cent of our revenue from SMBs (small and medium-sized businesses) is from campaigns that use these tools and strategies, up from 23 per cent in the beginning of last year.”

What goes up, must come down?

As Reuters noted, Facebook has long warned that its mobile-driven growth cannot continue unabated – if nothing else, because the company’s signature News Feed is hitting its maximum ad load, potentially slowing overall growth.

During the call, even CFO Wehner noted that the company expects ad revenue growth to slow down as the year progresses.

“We expect that our strategic focus on driving engagement with mobile video may slow advertising impression growth, given the relatively fewer ad impressions in video relative to News Feed,” he said.

For now, though, the company’s growth ceiling remains anyone’s guess: Wehner also noted that during the quarter, the average price of an ad increased by 24 per cent, and the number of ad impressions by 19 per cent – largely thanks to mobile feed ads on Facebook and Instagram.

Our thanks to investment research platform Seeking Alpha for the transcriptions from Facebook’s July 26 Q2 earnings call.

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Eric Emin Wood
Eric Emin Wood
Former editor of turned consultant with public relations firm Porter Novelli. When not writing for the tech industry enjoys photography, movies, travelling, the Oxford comma, and will talk your ear off about animation if you give him an opening.

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