Facebook said in its third-quarter earnings report Wednesday that its total advertising revenue for the period was $1.8 billion, up 66 percent when compared with the year-earlier quarter, and mobile accounted for 49 percent of that revenue. During the company’s earnings call Wednesday, Chief Operating Officer Sheryl Sandberg and Chief Financial Officer David Ebersman offered more specific details.
The social network said the three key segments it is focused on are mobile engagement growth, boosting the total number of marketers on Facebook, and product development.
Sandberg addressed mobile engagement during her opening remarks:
In 2013, for the very first time, people will spend more time with digital media than watching TV — eMarketer estimates more than 5.25 hours per day on digital services, including mobile, compared with 4.5 hours watching TV in the U.S.
Facebook is well-positioned to benefit from this shift. In the U.S., Facebook, including Instagram, accounted for one in eight minutes people spent on the desktop, but one in five minutes on mobile. According to comScore, Facebook and Instagram have more mobile time spent than many of the next largest services — including YouTube, Pandora, Yahoo, Twitter, Pinterest, Tumblr, AOL, Snapchat, and LinkedIn — combined. Along with this engagement, we believe that we have the best mobile ad product, with ads that are integrated into News Feed for people who spend the most of their time on Facebook.
As people shift where they spend their time, marketers are starting to follow. Our results today show that we are benefiting from this shift to mobile, and we believe this shift will continue and will continue to benefit us. Today, mobile represents 12 percent of consumer media time, but it’s still only 3 percent of ad budget.
Ebersman added during his opening remarks:
Mobile ad revenue in the third quarter was approximately 49 percent of our ad revenue, up from 41 percent in the second quarter. The sequential quarterly growth of mobile ad revenue was due to three factors — an increase in the average price per mobile ad, an increase in the number of mobile users, and an increase in ads shown per mobile user.
Sandberg also discussed the social network’s efforts to increase the total number of brands using it for advertising:
From brands, to direct-response, to local businesses, to developers, more marketers are advertising on Facebook because they recognize that our ads work to drive sales. This growth is taking place globally. In the third quarter, the number of Facebook advertisers in EMEA (Europe, the Middle East, and Africa) nearly equaled the number in North America, reflecting global growth in our online advertising.
Product development was a key topic for Sandberg during Wednesday’s call, as she said during her opening remarks:
We are working in a number of areas to make the ads people see on Facebook better. More targeted ads are better, and we are improving our ad targeting to increase relevance. We are investing in features like custom audiences and partner categories to improve targeting. These are great tools that are still in their early days and we will continue to invest.
We also want to make it easier for marketers of all sizes to buy ads and measure their impact. In late September, we rolled out ad format changes, making ads a bit more consistent across Facebook, and we reduced the number of ad units marketers have to choose from to reduce complexity. Then earlier this month, we rolled out a full redesign of our ad-buying tools to simplify the ads creation process. Advertisers now select from one of eight business objectives, such as website conversion.
We think these product investments make it easier for marketers to achieve their goals. We are also expanding our products for developers. We already have launched mobile application install ads, and these are going very well, and we now launched mobile app install ads for engagement. These ads help developers and businesses reach people who have already installed their apps and direct them back to increased engagement. We believe these ads are a nice complement to our install ads and represent a unique opportunity.
We also continued to invest in helping brands stay with our campaigns and increase same-store sales. We recently launched outcome measurement for the telecommunications industry. An initial test showed that more than 90 percent of people who made a purchase after viewing a Facebook ad have never clicked on that ad. This shows that impressions matter and focusing only on clicks does not tell the whole story.
Similarly, a recent study by Kenshoo, one of our leading Preferred Marketing Developer partners, proves this point. The Kenshoo study found that marketers that use multitouch attributions to measure campaign ROI (return on investment) credited 12 percent to 13 percent more value from Facebook than marketers that use off-click attributions, but we still have work to do. Brand marketers aren’t moving as quickly as we would like, and we believe measurement is key to influencing the app advertisers.
Later in the call, Sandberg said in response to a question from Morgan Stanley Analyst Scott Devitt:
Our growth overall is based on the strong performance of News Feed ads, an increase in the number of News Feed ads per user, and also more marketers. The simplification of products has actually been very important in attracting new marketers. If you look at the new advertisers we acquired in the third quarter, 62 percent of them started with either promoted posts or promoted page like ads, which are the most simple of our advertising formats.
So we are continuing to roll out very simple ways to become an advertiser, which is driving our growth, and we will continue to.
The larger question you asked was based on our focus of business objectives, and that’s actually really a big deal for us. We are now getting to the point where our ad product supports really helping marketers achieve their core business objectives.
So before, people used to buy via the product: What product do you want to buy? And now they are buying from, I would say, identifying: I want to get mobile apps installed. I want to get mobile engagement. I want to get website conversions.
I think the fact that we are pivoting to focus on those end business results and making everything else, including social, a part of meeting those business results is a really important part of our strategy. It’s driving our growth, and I think it’s going to continue to.
During his opening remarks, Ebersman offered more specific data on ad impressions and the cost per ad for marketers:
The primary drivers of ad revenue growth were an increase in the number of and the strong performance of News Feed ads and an increase in the number of marketers using Facebook and increased demand in our system. In the third quarter, overall ad impressions were up 16 percent, and the average price per ad was up 42 percent compared with last year.
The growth in ad impressions was primarily due to marketers using our service, combined with the impact of a price-floor reduction late in the third quarter of last year. The growth in price per ad was primarily due to the increase in News Feed ads. In the U.S. and Canada, where last year’s price-floor change had a smaller impact, ad impressions decreased 8 percent and average price per ad increased more than 60 percent compared with last year.
The decrease in ad impressions despite an increase in the number of users in the U.S. and Canada was due to the continued migration of usage to mobile devices, where we show fewer ads per person compared with the Web. The greater-than-60 percent increase in average price per ad in the U.S. and Canada was primarily due to the increase in the number of News Feed ads shown on both mobile and Web.
Due to their high engagement levels, News Feed ads have a significantly higher price per ad than right-hand-column ads. Therefore, the mix shift of our ads toward the higher percentage being in News Feed versus right-hand column is driving up our average price per ad.
Looking now at the Web, ad revenue from Web usage decreased both sequentially and year-over-year. Web ad revenue includes both News Feed ads on the Web and right-hand column ads on the Web. Revenue from News Feed ads on the Web increased significantly in the third quarter, sequentially and year-over-year, driven largely by an increase in the number of News Feed ads per Web user. The increase was not enough to offset the revenue decline from right-hand-column ads.
Readers: What is your take on how Facebook is handling the transition to mobile on an advertising and marketing basis?
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