Facebook triples Q1 profit as mobile ad revenue spikes

Facebook reports advertising revenue of $5.2bn for the first quarter of 2016, with 82% coming from mobile ads, compared with 73% for the same period the year before

Facebook shares rose by more than 9% in after-hours trading after the company reported first quarter profit of $1.51bn, up from $512m in the same period the year before, beating analysts’ expectations.

The social networking firm reported revenue of $5.38bn, up 52% compared with the first quarter of 2015, with advertising revenue rising 57% to $5.2bn.

Analysts polled by Thomson Reuters predicted profits of $1.1bn from revenues of $5.25bn, according to the International Business Times.

Significantly, 82% of the ad revenue came from mobile, compared with 73% in the first quarter of 2015. Pundits said Facebook had attracted new advertisers through its focus on live video.

The future success of Facebook was widely considered to rest largely on the company’s ability to make a successful transition to the mobile era.

Total monthly active users (MAU) increased 15% from a year ago to 1.65 billion, with each user earning the company an average of $3.32 compared with just $2.50 in Q1 of 2015.

Mobile MAUs increased 21% to 1.51 billion, accounting for nearly 92% of the total number of MAUs.

"We had a great start to the year," said Mark Zuckerberg, Facebook founder and CEO. "We're focused on our 10-year roadmap to give everyone in the world the power to share anything they want with anyone,” he said.

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Share restructure

Facebook announced that Zuckerberg had asked the board to issue non-voting “Class C” capital stock so he can donate money from his shares to charity while maintaining control of the firm.

The announcement comes four months after Zuckerberg and his wife Priscilla Chan announced they would give away 99% of their wealth to “advance human potential” and “promote equality” after the birth of their daughter, Max.

Under the current shareholder structure,  Zuckerberg would be unable to carry out the plan without giving up control of the company he founded.

“This proposal is designed to create a capital structure that will, among other things, allow us to remain focused on Mr Zuckerberg's long-term vision for our company and encourage Mr Zuckerberg to remain in an active leadership role at Facebook,” the company said in a statement.

In a separate note, Zuckerberg said: “I’ll be able to keep founder control of Facebook so we can continue to build for the long term, and Priscilla and I will be able to give our money to fund important work sooner.

“Right now, there are amazing scientists, educators and doctors around the world doing incredible work. We want to help them make a bigger difference today, not 30 or 40 years down the road.”

The adoption of the proposal is subject to the approval of Facebook’s stockholders at the company’s 2016 stockholders' AGM, to be held on 20 June 2016.

Strategic importance of video

Looking to the future, Zuckerberg said: “I see more bold moves ahead of us than behind us. We’re focused not on what Facebook is today, but on what it can be, and what it needs to be for our community.

“That means investing in areas like spreading connectivity, building artificial intelligence and developing virtual and augmented reality. I am committed to our mission and to leading Facebook there over the long term,” he said.

Justin Taylor, UK managing director at digital video advertising company Teads, said Facebook’s earnings underline just how central video has become to the digital strategies of most advertisers.

“We’re seeing brands prioritise ‘in-feed’ video advertising, which is less interruptive than traditional pre-roll formats offered by the likes of YouTube. Facebook has made the most of this and it’s clearly paid off,” he said.

However, Taylor said that, if Facebook is to maintain its position as the dominant social media platform, it must fiercely protect the user experience.

“One way to do this is to make video advertising ‘native’ – meaning it complements the surrounding page content or editorial. For example, a user reading about football will be served a relevant football-related product ad,” he said.

For Facebook, Taylor said this is challenging as it has very little editorial control over the user-generated content that appears on its site.

“This is where premium publishers such as online newspapers and magazines can gain the upper hand in the race for advertisers. They can offer advertisers a premium, safe environment for native video ads that are engaging because of – not in spite of – the content that surrounds them.

“Expect the juggernaut that is Facebook to continue to attract video advertising dollars in the coming months – but expect premium publishers to also win their fair share of the growing pie,” he said.

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