Facebook answers questions rivals can’t

July 24, 2013

By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Facebook is answering questions that its rivals can’t. Big technology firms have mostly reported subpar second-quarter earnings, with desktop software giant Microsoft the leading victim of the shift to mobile computing. By contrast, Mark Zuckerberg’s social network is thriving on portable gadgets, and Facebook’s revenue growth – 53 percent to $1.8 billion in the quarter – was the fastest since its initial public offering in May last year. There’s more fuel here.

The number of people going to Facebook via mobile devices continues its inexorable rise. Of the 1.15 billion people who visit the site monthly, more than 800 million now do so via smartphones and tablets. More importantly, Facebook has figured out how to sell advertising on those smaller screens. Mobile now accounts for more than 41 percent of all advertising revenue, up from about 30 percent last quarter and close to nothing a year ago.

Not only is Facebook serving up lots of mobile ads, it is getting more revenue out of each one. According to the company, the price per click on a mobile ad rose in the quarter and overall ad prices rose 13 percent year-on-year. That’s notable when Internet search giant Google is seeing its revenue per click decline as cheaper mobile ads displace more expensive desktop ads – and helps explain why Facebook’s shares jumped as much as 20 percent in after-hours trading on Wednesday. Another similar leap, and the company’s stock would finally regain its $38-a-share IPO price.

The mobile advertising engine is revving up, too. Users are spending a lot of their time on mobile devices, but as yet only about 2 percent of global ad spending is aimed at smartphones and tablets, Facebook reckons. It seems nearly inevitable that advertisers will eventually spend more money and time reaching people on their handheld gadgets. At one stage there were questions about Facebook’s ability to capitalize on that trend. Now it looks like one of the few tech firms that has figured out how to do just that.

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