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Facebook’s mobile video adverts boost sales growth above projections

Mark Zuckerberg

Facebook Inc.’s investors are salivating over the revenue potential for
the company’s chat businesses, Messenger and WhatsApp, after Chief
Executive Officer Mark Zuckerberg said he’d like to move “a little
faster” to make money from them.

The company has warned that sales growth, fueled primarily by mobile
advertising, will slow because it can’t keep loading ads into users’
news feeds on its main social network. Both of Facebook’s chat apps have
more than 1 billion users, though neither contributes significant
revenue yet. After the company’s earnings report Wednesday, Wall Street
decided these apps are the answer to the growth challenge, and
Zuckerberg’s comments sent the shares up as much as 4.7 percent in
extended trading.

Executives spent the bulk of their earnings call with investors
fielding questions about the potential for Messenger and WhatsApp.
Zuckerberg tempted them further, saying Facebook “should be able to do
better” at building a business than popular Asian messaging apps. It was
left to Chief Operating Officer Sheryl Sandberg and Chief Financial
Officer David Wehner to quickly remind everyone that the app businesses
were still in experimental phases.

Sensing he might have inflated expectations just a bit too much, Zuckerberg reframed his remarks.
“So there have been a number of questions about Messenger,” he said.
“It’s a longer term thing. I actually think in over the next couple of
years or few years, the much bigger driver of the business and
determinant of how we do is going to be video, not Messenger.”

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Earlier, Facebook reported second-quarter sales that beat analysts’
estimates, climbing 45 percent to $9.3 billion. Mobile advertising
generated 87 percent of total ad revenue, an increase from 84 percent in
the same period a year earlier. Net income rose to $3.9 billion, or
$1.32 a share, from $2.3 billion, or 78 cents.

Facebook’s social network, now with 2.01 billion monthly active
users, is steadily driving sales at a faster pace than at other
technology giants. That consistency funds the company’s efforts in chat
applications and virtual reality. To keep up growth, Facebook has been
heavily investing in video.
The sales growth is “really based on increased engagement” on Facebook and Instagram, Sandberg said in an interview.

“Facebook and Google are taking virtually all the growth in digital
advertising — they’re the easiest place to spend your money,” said Brian
Wieser, an analyst at Pivotal Research Group.
Facebook shares closed Wednesday at $165.61 in New York, just off the
company’s record high of $166 on Monday. The stock has increased 44
percent this year.

TV Initiative

While Facebook’s video advertising business has helped propel sales for
the last few quarters, the company is getting into content, too.
Facebook has funded TV-like shows and short video series for a new
product set to come out in mid-August, people familiar with the matter
have said. The effort will help the company gain a share of the $70
billion television advertising market. It will also kickstart Facebook’s
role as a video platform for episodic viewing, not just the viral
videos that already are common, Sandberg said.

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With the frequency of ads on the social network holding steady to
avoid turning off users, Facebook is relying on Instagram, the
photo-sharing application, for more ad inventory. Now with more than 700
million users, Instagram has a mature advertising business, built off
of Facebook’s, and has been competing with newly public Snap Inc., the
maker of Snapchat, for young audiences.

Facebook acquired WhatsApp for $22 billion, and spun off Messenger
from its main application. WhatsApp now has 1 billion users a day, the
company said. Before Wednesday, Zuckerberg hadn’t expressed any urgency
about making money from those applications. Both are attempting to
generate sales from users’ direct relationships with businesses. Oculus,
the company’s virtual reality division, has been working to make the
technology popular among consumer audiences, but hasn’t yet seen
widespread adoption.

The new initiatives helped boost Facebook’s costs 33 percent to $4.9
billion in the quarter. The company also increased its workforce 43
percent to 20,658 as of June 30.

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