Facebook Serving Fewer Ads, Making More Money

Social network's $1.18 billion Q2 revenue ekes out estimates

Facebook generated $1.18 billion in second-quarter revenue, a 32 percent increase from last year and just clearing Wall Street estimates. Advertising contributed 84 percent of the company’s total revenue and grew 28 percent year-over-year to $992 million. Payments and other fees chipped in the other $192 million, a 61 percent increase for the business.

Facebook’s advertising business has grown to the point that Facebook earned nearly $1 million a day from Sponsored Stories running in the News Feed, with roughly half of that coming from mobile, said CEO Mark Zuckerberg during an earnings call. That number should only grow since Facebook just began placing Sponsored Stories in the desktop News Feed in January and in the mobile feed in April. Plus Zuckerberg said the company’s been limiting the number of in-feed Sponsored Stories in order to not degrade the user experience.

Despite the daily run rate, Facebook is actually serving less ads. The company’s CFO David Ebersman said the company served 2 percent fewer ads in the U.S. during Q2 2012 than it did during Q2 2011. And of the ads Facebook does serve, fewer than half are social, said COO Sheryl Sandberg, even though Zuckerberg said that social ads perform “much better” than non-social offerings.

Marketers have long questioned the value of advertising on Facebook, so the company used its earnings release to respond, at least in part. In looking at ROI data from more than 60 ad campaigns, Facebook said 70 percent of the campaigns returned three times what brands spent to run the campaign and for 49 percent of the campaigns the return was fivefold.

The social network has grown to 955 million monthly active users, up 29 percent year-over-year. Of those users 58 percent, or 552 million, check out the site every day. Monthly mobile users rocketed by 67 percent to 543 million. “People who use our mobile services are more active Facebook users than those on desktop,” said Zuckerberg, adding that mobile users are more than 20 percent more likely to use Facebook on any given day that non-mobile users.

Zuckerberg stressed the importance of building Facebook as a platform that would thread other things people do, such as playing games or reading articles. He said that Facebook users are sharing nearly 1 billion pieces of content each day through Open Graph, which lets users automatically publish to the News Feed actions outside of Facebook such as listening to a song on Spotify. But Zuckerberg’s ambitions are even larger.

“Imagine a day when you buy a new car and log in to the car’s computer with Facebook and it lights up with [music, friends’ addresses and retail locations] targeted to you based on your friends and interests,” he said. Then he added, “Our vision for the platform is bigger than most people perceive.”

At $3.20 versus $1.28, Facebook makes more than double in revenue per U.S. and Canadian users than it does from total users. The region contributed half of Facebook’s Q2 revenue, rising 23 percent year-over-year to $590 million.

Facebook’s grown its headcount by 49 percent over the last year to end the first half of 2012 with 3,976 employees.