Facebook confirms mobile ad success, but profits dip

Despite the better than expected second-quarter results, Facebook's share price fell by 5.4% in after-hours trading before rallying

Facebook has reported revenue of $4.04bn for the second quarter, up by 39% compared with the same period a year ago, but profits were down by 9% to $719m.

The social networking form was hit by costs of investing in new technologies and the rising dollar. Facebook said its revenues would have been up 50% not 39% without the impact of currency changes.

Despite the better than expected results, the share price fell immediately by 5.4% in after-hours trading before rallying.

"This was another strong quarter for our community," said Facebook founder and CEO Mark Zuckerberg. "Engagement across our family of apps keeps growing, and we remain focused on improving the quality of our services." 

Analysts said investors were reassured by indications that Facebook’s core business is thriving, with the number of monthly active users up by 13% compared with the same period a year ago to 1.49 billion and its advertising revenue up by 43% to $3.82bn, accounting for 95% of its total revenue.

Unlike Twitter, Facebook is not battling to grow its audience, with 800 million users of WhatsApp each month, 700 million people on Messenger, 300 million using Instagram, 850 million using Groups on Facebook, 450 million using Events on Facebook, and 40 million businesses using Pages.

Analysts said newly acquired services such as Oculus and Instagram are not yet delivering meaningful revenues, but they could build a base for future growth.

Significantly, 76% of Facebook's advertising revenue now comes from mobile advertising compared with 73% in the previous quarter, 62% a year ago and 0% in 2002 when the company went public, underlining the social networking firm’s successful transition to mobile.

Achieving growth in mobile advertising is seen as key to media companies as users switch to smartphones, tablets and other mobile devices.

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Video ads

Facebook chief operating officer Sheryl Sandberg said a big growth area for advertising was video ads, helped by Facebook's technology that allows marketers to get information on who is viewing the ads and how many are responding by buying the products they see.

"Video ads are a natural part of the news feed experience," she told a conference call with analysts. "And we can do targeting in a way that is really unique." For example, Sandberg said hamburger chain Wendy's was able to deliver specific video ads to young Facebook users who liked spicy foods.

In 2014, Facebook began offering video ads, which is now the fastest growing category of internet advertising. Although the video ad market is currently dominated by Google, analysts said Facebook is catching up fast.

Some analyst predict an increasing focus on video content on Facbook, with Zuckerberg telling investors  that “connecting people with more great video content is an important part” of the company’s future, and the company will improve its searchability.

Users had sent out some 40% more videos to their lists of friends and followers, Zuckerberg said, and the company was encouraging them to share still more.

Facebook said it would start selling its Oculus Rift 3D headset in the first three months of 2016. "3D content is the obvious next thing.Video will be huge, gaming will be huge. Once you start to get a critical mass we can get a social app which we are more specialised in," said Zuckerberg.

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