Facebook Execs Tout Mobile, Targeting

Mobile now 23 percent of quarterly ad revenue, per Q4 earnings

Facebook CEO Mark Zuckerberg’s claim during the company’s fourth-quarter earnings call on Wednesday that “Today there is no argument: Facebook is a mobile company” may sound a bit hyperbolic for the social network, given its history as the desktop social hangout. But Facebook’s number prove otherwise.

Desktop advertising still contributed the majority of Facebook’s $1.33 billion advertising revenue for Q4—up 41 percent year-over-year and 84 percent the company’s total $1.59 billion in Q4 revenue—but mobile now accounts for 23 percent of that revenue, whereas in Q3 mobile only chipped in 14 percent. Consider that in Q4 2011 mobile revenue was only a twinkle in Zuckerberg’s eye, given that the company had yet to even run a single mobile ad until last April.

Zuckerberg outlined three reasons to be bullish on Facebook’s mobile opportunities: larger reach, better engagement among those users and more the sheer amount of money-per-minute that people spend on Facebook’s mobile site or apps. With Facebook now counting 680 million mobile monthly active users (MAUs) (including 157 million mobile-only MAUs and 1.06 billion total MAUs across desktop and mobile), it's likely that mobile will contribute an even larger share of the company’s ad revenues in future quarters, especially once Instagram is factored in. Facebook's current mobile usage data doesn't even include Instagram, said CFO David Ebersman.

But as big a story as Facebook’s mobile ads business has become, it shouldn’t eclipse the company's booming News Feed ad business. Facebook COO Sheryl Sandberg said that 65 percent of advertisers are now running ads in the News Feed, whereas the third quarter ended with only 50 percent. Social ad firm Spruce Media reported earlier this week that ads shown in the News Feed saw a 34 percent higher clickthrough in Q4.

Advertiser adoption of News Feed ads is also likely buoyed by new, smaller advertisers embracing  Promoted Post ad units. Sandberg said almost 500,000 Pages have paid to extend the reach of a page post via Promoted Posts. 30 percent of those coming from new advertisers vs. 70 percent repeat customers.

For all the attention of new ad units Facebook rolled out last year—Sponsored Stories in News Feed, mobile app install ads, Promoted Posts, Sponsored Results, etc.—Sandberg spent much of her time on Wednesday’s earnings call discussing targeting. In particular she talked about Custom Audiences and Facebook Exchange, at one point emphasizing that the former “is not a separate standalone ad product but a targeting capability.” She offered a case study to stress the value in advertisers being able to target their existing customers through Custom Audiences then refine that list further through Facebook’s own targeting options. Mens’ retailer used Custom Audiences saw a 30 percent lower cost-per-acquisition and a six times higher ROI by using Custom Audiences.

As for the Facebook Exchange ad retargeting business, which doesn’t allow the blending of Facebook targeting options, by December FBX served more than 1 billion impressions daily, Sandberg said, across more than 1,300 advertisers a day.

New ad units and targeting capabilities are one thing, but they don’t guarantee ad dollars, especially not after initial experimentation. For that Facebook needs measurement to prove out those campaigns, and therefore “people need to think about measurement differently,” Sandberg said. “We need to educate people that the click is not the most important metric for us.” She cited a study that found 90 percent of users who saw a retailer’s ad on Facebook but never clicked on it still went on to buy something in store. She then pointed to a new conversion measurement tool launched in December that aims to attribute conversions outside of a clickthrough path.

Last year much was made of Facebook’s revenue potential outside of advertising, such as whether Facebook Gifts could open a path to an e-commerce play that would potentially rival Amazon or whether Payments could become a significant revenue stream. Facebook execs didn’t go into detail on that line of business during Wednesday’s call, but Ebersman said that Gifts was a “very small” part of the $5 million Facebook reaped from non-advertising and non-payments revenue sources. Traditionally Facebook’s Payments business has leaned on the cut the company takes from games’ in-game sales, but even that business seems to be close to waning. Ebersman said Payments revenue from games remained flat year-over-year with “an offsetting headwind from declining desktop usage for games in emerging markets” and no payments integration yet in mobile games.

In the meantime Facebook can return to its growing ads business. Last fall Facebook converted its deals product Offers to a paid-only model, in effect making it an ad unit. While Offers are among the lesser publicized Facebook marketing products—and part of a category that seemed to have been dying off with Groupon’s and LivingSocial’s ongoing struggles—Sandberg said that nearly 42 million unique users have claimed an Offer, though a claimed offer doesn’t necessarily mean a user redeemed the offer. As for new ad units, Zuckerberg repeatedly declined to discuss any products that may be in development, but left the company open to rolling out a video ad product that was reported in December.

“There’s already the ability for Pages to post content,” Zuckerberg said, adding that “for video advertising it’s not critical that we host the video…[Video advertising] is definitely an opportunity and over time we’ll have more to talk about.”

Overall Facebook’s 2012 revenue topped $5.09 billion, a 37 percent year-over-year increase to beat analysts’ estimates. Annual ad revenue rose by 36 percent year-over-year to reach $4.28 billion. Facebook’s stock is down by nearly 4 percent in after-hours trading.

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