Facebook crushes earnings — again
SAN FRANCISCO — Facebook reaffirmed its status as one of technology's biggest success stories on Wednesday, sending its stock to a record high after delivering the fastest rate of revenue growth in two years, a whopping 59%.
The social-media giant has topped Wall Street estimates all but once since its May 2012 initial public offering. The secret to its nearly unblemished earnings streak: Scorching growth in mobile advertising fueled by video spots and ads that target the growing number of people flocking to Facebook and its Instagram app.
"They knocked it out of the park again. Massive user growth combined with fantastic monetization," said Jan Dawson, chief analyst with Jackdaw Research.
Facebook served up the good news with a side of caution. Facebook's finance chief David Wehner warned analysts the Silicon Valley company would not keep up this torrid pace in the second half of the year, when it will face tough year-over-year comparisons. That's because Facebook increased the number of ads users saw in their News Feed in the latter half of 2015.
"We think we’re in a good zone on the right ad load and we do think there’s opportunity to grow that modestly," Wehner said during a conference call with analysts. "But, as we look forward into 2017, we think it will be a less significant factor driving inventory growth."
His warning didn't spook Wall Street, at least not that much. Shares rose 5% in extended trading as investors digested Facebook's second-quarter results. It ended Wednesday's regular session up 1.8% at $123.34.
"We had another great quarter," Facebook CEO Mark Zuckerberg told analysts.
You can say that again. Facebook generated $6.44 billion in revenue in the quarter, easily beating Wall Street estimates. Facebook has exceeded quarterly estimates all but once since its May 2012 initial public offering. Analysts expected Facebook (FB) to generate $6 billion in second-quarter revenue, according to S&P Global Market Intelligence. Mobile represented 84% of $6.24 billion in advertising revenue.
Advertisers are flocking to Facebook and its photo-sharing app Instagram to reach users who are hanging out there. As of June 30, Facebook says it had 1.71 billion monthly active users, up 15% year over year. Some 1.13 billion users logged into Facebook at least once a day in the same period, up 17% year over year. The bottom line: two thirds of Facebook users are on the service every day. And, in a sign of Facebook's hold over its audience, the number of users who accessed the service on a mobile device rose above 1 billion for the first time.
That massive and very attentive user base — and all of the data they bring with them — are a huge draw for marketers. Facebook will command nearly 68% of social media ad dollars around the globe this year, according to an estimate from eMarketer.
Profit is growing, too. In the second quarter, Facebook reported net income of $2.06 billion, or 71 cents a share, compared with $719 million or 25 cents a share a year ago.
Facebook posted earnings per share, excluding certain expenses, of 97 cents. Wall Street expected Facebook to report earnings per share, excluding certain expenses, of 82 cents, compared with 50 cents a year earlier.
"There's pretty much no sign of weakness anywhere in these numbers. Every chart is up, up, up, up. It's pretty incredible," said eMarketer analyst Debra Aho Williamson. "I think now we more clearly see why Facebook is able to make all of these investments in virtual reality and Internet access as well as why they haven't rushed to monetize Messenger and WhatsApp. Because they don't need to."
The earnings performance stands in stark contrast to Twitter, which warned of a sharp slowdown in its advertising business on Tuesday. "This is a company going in the opposite direction of Twitter," Williamson said.
VIDEO FOCUS
Zuckerberg singled out Facebook's growing bet on video with Facebook Live, its streaming video product, and 360 Video. Facebook is angling for a slice of television ad budgets.
"We’re particularly pleased with our progress in video as we move towards a world where video is at the heart of all our services," Zuckerberg said.
Video is part of Facebook's growing competition for young people whose attention is wandering to Snapchat. Facebook has built an arsenal for this battle: Its messaging apps WhatsApp and Messenger, two of the world's most popular, both have more than 1 billion monthly active users.
Those are still two money-making levers that Facebook has yet to pull.
"The big question is whether WhatsApp, Messenger, and other products can be monetized in the same way as Instagram and Facebook itself, especially when the likely business models are very different," Dawson said. "But that’s a longer-term question."