News / Economy

Facebook's Next Growth Engines Still Warming Up

People walk past graphic on a wall at Facebook headquarters, Menlo Park, California, Jan. 29, 2013.
People walk past graphic on a wall at Facebook headquarters, Menlo Park, California, Jan. 29, 2013.
Reuters
Facebook Inc. has a message for Wall Street: Don't expect new revenue streams anytime soon.

The world's No. 1 Internet social network delivered its strongest revenue growth in several years during the first quarter, as its mobile ad business gained steam.

But even as Facebook gave investors the good news, buoying its stock by roughly 3 percent in after-hours trading, the company made it clear that other money-making efforts such as video ads and ads within its Instagram photo-sharing app would not bear fruit in the near future.

“That will probably be the most disappointing statement to come out of the call,” said Macquarie Research analyst Ben Schachter. “Many folks were anticipating a next leg of growth.”

Facebook Chief Operating Officer Sheryl Sandberg told analysts on a conference call on Wednesday that Instagram ads, video ads and a nascent mobile ad network were all still in experimental phases and that none of them would make a meaningful contribution to revenue in 2014.

That may dash the hopes of some investors, who had expected Instagram to start generating revenue two years after Facebook acquired it for $1 billion.

“We're very focused on consumer growth, and we move slowly and deliberately in monetization,” Sandberg said, referring to the limited number of ads on Instagram. “We don't see the need or the urge to ramp this as quickly as we possibly can.”

Facebook is also going slow with auto-play video ads. Facebook said earlier this year it would allow a small group of advertisers to display 15-second video ads on Facebook, but Sandberg said on Wednesday the company was still gaging users' response and was in no hurry to open the service up broadly to advertisers.

The comments are likely to cause financial analysts and investors to re-appraise Facebook's near-term prospects. In notes to investors released prior to Wednesday's earnings report, Morgan Stanley estimated that video ads could contribute $900 million to Facebook's top line this year, while Cowen & Co targeted $1 billion in video ad revenue.

Shares of Facebook remained up in after hours trading, even after the company warned that its advertising revenue growth would slow throughout the year, as it faces tougher year-on-year comparisons.

Investors are willing to give Facebook some leeway, given its strong performance building the mobile ad business, said Macquarie's Schacther.

“They've earned the benefit of the doubt, that even if it doesn't come this quarter, or the next quarter, that it will come,” he said of the company's additional revenue opportunities.

Turnaround

Facebook's newsfeed ads, which inject paid marketing messages straight into a user's stream of news and content, have ignited Facebook's revenue growth and bolstered its stock price during the past year. The ads are ideally suited for the smaller-sized screens of smartphones and other mobile devices.

Facebook said mobile ads contributed 59 percent of its ad revenue in the first quarter, up from 30 percent in the year-ago period. Facebook's overall revenue grew 72 percent year-on-year to $2.5 billion in the first quarter, above the $2.36 billion expected by analysts polled by Thomson Reuters I/B/E/S.

Facebook's first-quarter results underscore how far the company has come since its rocky 2012 initial public offering, when concerns about slowing revenue growth cut its stock price in half. At the time, investors questioned Chief Executive Mark Zuckerberg's commitment to the financial side of the business, spooked by the hoodie-wearing founder's comments about that Facebook does not build services to make money, but rather that it makes money to build better services.

Many of the key investor concerns about Facebook's ability to transition its ad business to mobile phones and a perception that consumers were cutting back their time on the social network have been dispelled, said FBN Securities analyst Shebly Seyrafi.

He noted the proportion of Facebook users who access the site daily increased to nearly 63 percent in the first quarter, up from 61.5 percent at the end of 2013.

“If you look at user growth, engagement rates and monetization, the three key levers of value, Facebook delivered on all three,” he said.

While Seyrafi said he believed Instagram has the potential to turn into a near-term money-maker, he said he was not concerned by Facebook's comments.

“All these things are new shoots of growth for the company,” Seyrafi said. “But I think that they want to deliver first and report it afterwards, rather than guiding beforehand.”

 

 

You May Like

For Lebanon-based Refugees, Desperation Fuels Perilous Passage

In a war that has caused an estimated three million people to flee Syria, efforts to make perilous sea journey in search of asylum expected to increase More

South African Brewer Tackles Climate Change

Mega-brewer SAB Miller sent delegates to climate summit in Peru, says it is one of many private companies taking their own steps to fight climate change More

Indonesia Reports Increase in Citizens Joining Islamic State

Officials say more than 350 of its citizens are now in Syria or Iraq to fight with Islamic State - 50 more than last month More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Will Pakistan School Shooting Galvanize Pakistan Against Extremism?i
X
Ayesha Tanzeem
December 17, 2014 11:54 AM
The attack on a military school in Pakistan’s northwest city of Peshawar left 141 dead, including 132 children. Strong statements of condemnation poured in from across the world. The country announced three days of mourning, and the leadership, both political and military, promised retribution. VOA's Ayesha Tanzeem looks at how likely the Pakistani government is to clamp down on all extremist groups.
Video

Video Will Pakistan School Shooting Galvanize Pakistan Against Extremism?

The attack on a military school in Pakistan’s northwest city of Peshawar left 141 dead, including 132 children. Strong statements of condemnation poured in from across the world. The country announced three days of mourning, and the leadership, both political and military, promised retribution. VOA's Ayesha Tanzeem looks at how likely the Pakistani government is to clamp down on all extremist groups.
Video

Video ‘Anti-Islamization’ Marches Increase Tensions In Germany

Anti-immigrant rallies in Germany have been building in recent weeks, peaking Monday night in the city of Dresden where tens of thousands of people turned out to demonstrate against what they call the ‘Islamization’ of the West. Germany has offered asylum to more Syrian refugees than any other country, and this appears to have set off the protests. Henry Ridgwell reports from London.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.
Video

Video Refugees Living in Kenya Long for Peace in the Home Countries

Kenya is host to numerous refugees seeking safe haven from conflict. Immigrants from Somalia face challenges in their new lives in Kenya. Ahead of International Migrants Day (December 18) Lenny Ruvaga has more for VOA News from the Kenyan capital.
Video

Video Turkey's Authoritarianism Dismays Western Allies

The Turkish government has been defiant in the face of criticism at home and abroad for its raids targeting opposition media. The European Union on Monday expressed dismay after President Recep Tayyip Erdogan lashed out at Brussels for criticizing his government's action. Turkey's bid to be considered for EU membership has been on hold while critics accuse the NATO ally of increasingly authoritarian rule. Zlatica Hoke reports.
Video

Video US-China Year in Review: Hong Kong to Climate Change

The United States is pushing for a code of conduct to resolve territorial disputes in the South China Sea as it works to improve commercial ties with Beijing. VOA State Department correspondent Scott Stearns reports on a year of U.S. policy toward China from Hong Kong to climate change.
Video

Video Japanese Leader’s Election Win Raises Potential for Conflict with Neighbors

Japan’s Prime Minister Shinzo Abe and his allies easily won a two-thirds majority in parliament Sunday, even though the country has slipped into recession under his conservative policies. VOA’s Brian Padden reports from Seoul, that the prime minister’s victory will empower him to continue economic reforms but also pursue a nationalist agenda that will likely increase tensions with Japan’s neighbors.
Video

Video Nuba Mountain Families Hide in Caves to Escape Aerial Bombings

Despite ongoing peace talks between Sudan's government and the rebel Sudan People’s Liberation Movement-North, or SPLM-N, daily aerial attacks continue in South Kordofan province’s Nuba Mountains. Adam Bailes was there and reports for VOA that government forces are targeting civilian areas, rather than military positions, with their daily bombardments.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8033
JPY
USD
117.19
GBP
USD
0.6372
CAD
USD
1.1634
INR
USD
63.622

Rates may not be current.