(Updated to add details from conference call and analyst's comment.)
Facebook’s mobile ad engine helped the social network achieve sizable gains in revenue, but spending weighed on profits.
The company said Wednesday that its revenue for the fourth quarter rose 42% to $3.54 billion, from $2.5 billion in the same quarter a year earlier. Analysts had expected $3.56 billion. Adjusted earnings per share rose to 42 cents a share, up from 35 cents a year earlier, beating analysts’ estimate of 40 cents on the same basis.
Spending on data centers and long-term projects such as virtual reality and expanding internet access cut down profits. Facebook reported that expenses grew 83% to $2.61 billion. Capital expenditures were $502 million for the first quarter.
A strong U.S. dollar also stunted Facebook’s revenue. More than half of Facebook’s revenue comes from outside the U.S., especially in western Europe, Brazil, Australia and Canada.
As noted in FORBES’ earnings preview, all eyes are on Facebook’s ad strategy, particularly for video, and on monetization plans for its mobile apps: Messenger, Instagram and WhatsApp.
Video ads are an increasingly important revenue stream for Facebook. Digital video advertising revenue in the U.S. is expected to rise 30% to $7.77 billion this year, according to forecasting firm eMarketer, and both Facebook and
Facebook’s suite of mobile apps could all become multi-billion dollar businesses in the long-run. Investors are staying tuned for more information on how Facebook’s recent payment feature and third-party apps on Messenger could affect financials. Messenger has 600 million monthly users, Instagram has 300 million monthly users and WhatsApp has 800 million monthly users. Facebook's main social network has more than one billion users. Investors are also tracking Zuckerberg's goal to build Oculus into a next-generation computing platform and what it will affect the company’s top line.
Mobile ad revenue continues to rev up. Facebook said that mobile ads made up 73% of its advertising revenue for the quarter, up from 59% a year earlier. Last year, Facebook boosted its share of U.S. mobile advertising to 18.5% to $19.2 billion, up from a share of 14.4% in 2013, according eMarketer.
Total monthly active users were up 13% from a year earlier to 1.44 billion, and mobile monthly active users were up 24% to 1.25 billion. Daily active users were 936 million on average for March 2015, an increase of 17% from a year earlier.
"This was a strong start to the year," said Mark Zuckerberg, founder and CEO in Wednesday’s press release. "We continue to focus on serving our community and connecting the world."
In a conference call with analysts, Facebook executives highlighted the growing importance of video on the platform. The company said the first quarter saw more than four billion daily video views.
“Video is exploding on Facebook, and that gives us an opportunity to do a lot of work with marketers,” said Sheryl Sandberg, Facebook's COO.
The company said more than 1 million small and medium sized businesses have posted videos and have begun buying video ads on Facebook.
“With our largest [marketer] clients, we’re not close to five percent of their spend, so I think we have a considerable opportunity to grow,” said Sandberg.
Facebook also emphasized gains it has been making in mobile, noting that in the first quarter, users made more than one billion searches on mobile every day.
“Facebook has become a pure mobile-first play,” said Sephi Shapira, CEO of performance mobile advertising company MassiveImpact. “To an extent, they’ve abandoned the online business, which is very interesting because Facebook didn’t exist in mobile a few years ago.”
Facebook also offered updates on long-term initiatives. Zuckerberg said that Internet.org has connected 7 million new people to the Internet. When asked about plans for Oculus, CFO David Wehner said Oculus headsets won’t ship in meaningful volumes this year.
"It’s not the blockbuster report that we’ve seen in the past, but it was an okay, decent quarter," said Victor Anthony, managing director at Axiom Capital Management. "They have multiple irons in the fire that could contribute to revenue and profits over time."
Facebook shares fell 2.2% to $82.77 in after-hours trading on Wednesday.
