Mobile takes center stage in Facebook’s Q4 2012 results



Facebook’s 4Q12 results suggest that the company is on the right track after its disappointing IPO and the lackluster two quarters that immediately followed. What stands out from the company’s latest results is how central mobile is to its service strategy and growth. Revenues from mobile advertising accounted for 23% of the social network’s total advertising revenues, compared to 14% in the previous quarter. This solid progress should be applauded, as a key challenge for Facebook has been how to monetize its mobile user base, particularly as an increasing number of users interact with the platform by this means alone. Facebook also promised to monetize its new Graph Search feature, setting the agenda for new ways to drive future growth. But there were aspects of its results that were less positive, most notably the way high costs have eroded profits, a trend that Facebook does not expect to lessen in the short term.

The critical role of mobile in Facebook’s growth

Facebook CEO Mark Zuckerberg opened the company’s 4Q12 results briefing by announcing that in 2012 the social network “connected over a billion people and became a mobile company.” The company has worked hard to extend its reach and engagement with consumers through mobile. This work seems to have paid off, as the company claims that more people now access the social network on a daily basis via mobile than the desktop. Facebook reported 680 million mobile monthly active users (MAUs) in 4Q12, a significant portion of its total of 1.06 billion MAUs. Moreover, of those 680 million mobile MAUs, 157 million were exclusively mobile. This compares to 432 million mobile MAUs in 4Q11, of which 58 million were mobile-only users. The problem for Facebook with this scenario, and one that was under the spotlight during its IPO, is how to monetize its mobile user base. The danger is that the company’s core online advertising revenues will decline as more users migrate to mobile, and in the past it seemed to lack a solid business model to support this transition and capture mobile advertising dollars.

But Facebook’s 4Q12 results indicate that it has addressed this problem. Mobile advertising contributed $306m to Facebook’s total advertising revenues of $1.33bn. This is the first time the company has broken out its mobile advertising figures, which is a sure sign of its confidence in this area. Mobile news feeds with sponsored story advertising are doing particularly well, and 65% of Facebook’s advertisers now buy their ads in this way. Facebook also revealed that Walmart delivered 50 million mobile ads over Thanksgiving weekend.

The bigger picture

Facebook’s Q4 and full-year 2012 results are an important juncture for the company, as they reveal just how well it has performed since going public in May 2012. The revenues from mobile have proved a high point, but overall Facebook has put in a solid performance. Its 4Q12 revenues were $1.59bn, up from $1.31bn in 4Q11, while its full-year revenues for 2012 were $5.09bn, up from $3.71bn the year before. Advertising accounted for 84% of the social network’s total 4Q12 revenues, a year-on-year growth of 41%. Its remaining revenues came from payments, specifically for games and gifts. Facebook’s gaming revenues have been hit by the migration to mobile; the company admits it has yet to capitalize on this shift in terms of monetization, but it intends to find ways to address this going forward.

Facebook’s profit performance was more uneven. In 4Q12 it achieved profits of $64m, and although this was clearly an improvement on its losses in the previous two quarters, it fell short of the $305m profits it realized in 4Q11. The company’s profits have been hit by high costs and expenses, which in 4Q12 were $1.06bn, an increase of 82% on 4Q11. Facebook warned that its costs will increase further in 2013, as it intends to invest more in infrastructure and people.

Facebook’s plans for the future look promising

Facebook’s 4Q12 results show that it has laid a good foundation on which to grow its business. In global terms there is room for it to grow outside of its core North American markets, which still dominate its global revenues. The company’s ARPU for 2012 was $13.58 in the US and Canada, compared to $5.91 in Europe and $2.35 in Asia.

It is still early days for mobile advertising, and Facebook has the scope to introduce new features and formats. There are opportunities for the social network to leverage location to support mobile advertising, an area where it has barely tested the waters. In the results briefing Facebook noted that the recently launched Graph Search would be a pillar of its future growth, although it would not be drawn on details. Graph Search launched without advertising, and the most immediate way to monetize the service would be via sponsored search.

Mark Zuckerberg also indicated that Facebook is interested in exploring opportunities around video advertising. For example, video could be used to make sponsored stories in news feeds richer and more sophisticated. However, he was muted when it came to how its photo sharing service Instagram fits into the monetization equation. This was disappointing, but might be explained by a sense of caution following the backlash that arose in December 2012 when new terms of service (TOS) were announced for Instagram. These terms were intended to give advertisers more flexibility in incorporating user-created photos in their ads, but complaints forced Instagram to back down and revert to its previous TOS. This episode underlines the fact that, whatever Facebook’s plans are for exploiting advertising, it must be mindful of user privacy.



Eden Zoller, Principal Analyst, Consumer Practice

Further reading

Facebook’s Prospects in a Post-IPO World (February 2012)


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