The Only Number That Matters from Facebook’s Earnings
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$150 million, that’s the amount of money Facebook ) earned last quarter from mobile. If you’re an investor in the company it’s music to your ears. It’s a number that sent the stock skyrocketing more than 20% as it proved that this is a company that just might be more than its initial hype.
On the conference call to discuss the earnings release, CEO Mark Zuckerberg said of mobile, “Finally, I want to dispel this myth that Facebook can’t make money on mobile. This may have seemed true earlier this year because we hadn’t started trying yet. Today, after just six months of ramping up our mobile ad business, we’re already at a point where 14% of our ad revenue this quarter is from mobile. That’s about $150 million. And the most important thing to understand here is that we’re just getting started with our mobile product development and monetization.” Talk about a shot at detractors and reason for investors to be excited.
This is important because of the billion people that use Facebook each month; six hundred million of them use it on their mobile device. More than 20% of their mobile users are now using their phone exclusively to access the platform. That number will continue to rise, especially with Apple’s ) iPhone 5 just hitting the market. As I mentioned in my earnings preview, the new phone has tightly integrated Facebook to the point where you can “like” a song on Apple’s iTunes or even ask Siri to update your wall.
While their $150 million of mobile revenue was important, it wasn’t the only important number of note in the report. The company was forecasted to earn seven cents and they came in with twelve cents of Non-GAAP earnings which the market really liked. Finally, revenue climbed to $1.262 billion or 32% higher than the $954 million they took in the same quarter last year. One trouble spot was the 9% sequential decline in payments revenue which clocked in just under mobile at $176 million.
A bulk of their payments revenue comes from gaming companies like Zynga ) whose business “last several months have been challenging” as CEO Mark Pincus states in their earnings release. In their conference call CFO David Wehner said that their “Facebook-related bookings represented 80% of our bookings; substantially all of our non-Facebook bookings were on mobile platforms.” Further along in the call it was mentioned that their business is down 20% on Facebook which could have been due to some algorithmic changes to the platform that they are navigating through. So, while Zynga is struggling and dragging some payments revenue with it, I wouldn’t see it as a concern just yet but certainly an area to watch.
While Facebook can’t really control what happens at companies like Zynga that use their platform, they can work to improve what they do control. They are doing so by focusing on three areas right now: Mobile, Platform and Monetization. While mobile ads are both a near and long term monetization focus for them, they are building out other ways to monetize their platform and user base. E-commerce platforms could eventually be a big part of the Facebook user experience. The just launched Facebook Gifts or Offers could end up being huge revenue generators.
In the meantime they have an ads platform that’s still in its infancy. Just taking a look at the brand marketing part of the platform shows great things ahead. On the call, COO Sheryl Sandberg said that “for brand marketers like Wal-Mart ) and Procter & Gamble (NYSE: PG), Facebook offers the ability to reach customers, build awareness, and drive positive association, affinity, and consideration. We help brand marketers develop ongoing and often daily relationships with customers, in many cases for the first time. Facebook is starting to combine the science of CRM with the scale of brand marketing.”
For both companies it is all about messaging and having your brand associated with what’s good. When your friend with three kids writes on her wall that Tide is great at getting stains out or that Wal-Mart had a great sale on Pampers that association is powerful. It as Sandberg put it, “drives positive association.” Not only do 3.5 million people like Tide and 23.8 million like Wal-Mart, but I know which of my friends want to publically associate with a brand. They have multiple ways to continue to exploit and monetize just the brand marketing aspect of their platform.
When I originally bought calls of Facebook from my “No Drip, No Mess” portfolio I said that they would figure out a way to make money and that I was simply tantalized by their open ended future. Now just a month later we’re beginning to see them begin to unlock some of their potential. When you have access to a billion people each month and know their relationships to each other that is a network with limitless power.
latimerburned owns shares of Apple and and has the following options: Apple, The Procter & Gamble Company and Facebook. The Motley Fool owns shares of Apple and Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Facebook, The Procter & Gamble Company, and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.