Has Facebook at last found a way to make money?
Mobile advertising finally gives investors something to like
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Friday 02 August 2013
It was at once one of the most eagerly anticipated stock market listings in recent years and the most disappointing: when Facebook decided to make the leap from Silicon Valley to Wall Street, investors began queuing up immediately for a slice of the social networking company, but when it pitched its shares too high, the stock cratered.
The post-mortem made for an embarrassing 2012 for a business that had enjoyed an astonishing rise, emerging from a university dorm room to become a technology behemoth in less than a decade, reigning over the social web from a base in Menlo Park, near San Francisco. Only this week, more than a year after the the stock floated and then promptly disappeared under water, did the price rise back to $38, the level at which it was initially sold to investors. The reason: Facebook's success at harnessing our growing fondness for mobile devices to generate advertising revenues.
Last year, in its second-quarter earnings release, the company didn't even bother to mention how much it made from mobile advertising, so nascent were its efforts in the new market. This year, the only thing anyone can talk about after the recent second-quarter results – and the thing that drove up the share price – was the announcement that more than 40 per cent of the company's advertising revenues over the period came from mobile.
The update helped cement a change in sentiment towards the company.
In the months after the listing in May 2012, Mark Zuckerberg's advisers were blamed for not only increasing the number of shares sold in the days ahead of the initial public offering but also the price, asking for up to $38 from an earlier upper limit of $35.
Soon, however, things got worse: the focus shifted from the too-high offer price to mobile revenues, which were too low. The market for mobile devices, meanwhile, continued to grow. Just this week, new figures data firm eMarketer show that in the US in 2013, adults are expected to spend more time consuming digital media on their mobile devices than on their laptops or PCs.
Facebook only began showing that it could exploit this growth during the latter half of last year. But, although at the time it appeared to be moving too slow for some in the stock market, its strategy ultimately proved to be a winning one: by allowing advertisements in news feeds and by giving developers the opportunity to push their apps inside Facebook's own mobile platform, the social-networking company began to generate a growing proportion of its overall advertising revenues from mobile.
Consider this: between July and September last year, mobile accounted for 14 per cent of the company's advertising revenues. That figure climbed to around 23 per cent in the three months to December. By March 2013, some 30 per cent of all advertising revenues since January had come from mobile.
The strength in the figures allowed the company's chief executive, Sheryl Sandberg, to declare last week: "We have an impressive share of mobile time spent and we have one of, if not the most-effective mobile app products."
Wall Street agrees, for now. As the share price recovers, focus is likely to shift to whether Facebook can maintain growing its mobile revenues without annoying its users with the number of ads that appear in their news feeds.
As Mr Zuckerberg noted in a call with analysts after the latest results on 24 July: "In recent studies, people have told us they noticed the ads more.
"Right now, ads on average make up about 5 per cent or one in 20 stories in [the] news feed. We haven't measured a meaningful drop in satisfaction when we ask people about their experience with Facebook. We're comparing that to the result we get when we ask the same question to people using a version of Facebook with no feed ads at all."
The social network: How Facebook evolved
Facebook came about in 2004 when Mark Zuckerberg, then a student at Harvard University, and his friends set up a social network for their classmates called "The Facebook". It grew so popular that they soon expanded to other campuses and began attracting the interest of outside investors. Among the earliest was Peter Thiel, the co-founder of the online money-transfer service PayPal, who ploughed in about half a million dollars in the summer of 2004.
By May 2005, as Facebook continued to grow in popularity, the website was valued at about $100m. In 2007, an investment from Microsoft reportedly drove up the implied value of the young business to an eye-watering $15bn.
As its user base and valuation swelled, attention turned to a potential stock offering. Facebook finally took the leap last year, offering shares to stock market investors in May. Today, nearly 700 million users turn to the social network every day.
On a monthly basis, Facebook serves more than 1.1 billion users, with a growing proportion – more than 800 million – using mobile phones and tablets to connect with their Facebook friends.
Apple has been hit by complaints about the 1.1GB download
Liam Neeson's Downton dreams
Thriller is set in the secret world of British espionage
Bomber jacket worn by Mary Berry sells out within an hour
Much-loved cartoon character returns - without Sir David Jason
Actress to appear in second series of the hugely popular crime drama
Matt Smith is set to join cast of the Jane Austen classic - with a twist
- 1 Thailand beach murders: Thai PM suggests 'attractive' female tourists cannot expect to be safe wearing bikinis
- 2 Scottish independence: Five reasons Salmond is secretly hoping for a 'No' vote
- 3 Isis plan to 'behead random member of the public' in Sydney thwarted by Australian police
- 4 Scottish independence: Andy Murray backs Yes campaign in eleventh hour decision
- 5 Have you heard about the film Singapore has banned its people from watching? Well, you have now
Thailand beach murders: Thai PM suggests 'attractive' female tourists cannot expect to be safe wearing bikinis
Scottish independence referendum live: Latest news as Scotland decides Yes or No
Scottish independence: Final opinion polls show undecided voters could swing result either way
Scottish independence: Almost half of No voters have felt 'personally threatened' by the Yes campaign
Isis plan to 'behead random member of the public' in Sydney thwarted by Australian police
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Portuguese academic says British are 'filthy, violent and drunk'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
iJobs Money & Business
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
£70-90,000: Saxton Leigh: Our client a London Market Insurer are seeking a Pro...
£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...