After Q3 2012 earnings released, analysts confident in Facebook's growing value.
Many still believe Facebook will eventually be able to effectively monetize its mobile users.
Facebook released its third-quarter numbers (PDF) on Tuesday, less than an hour before its formal earnings call (slated for 2pm PT). The company reported it had earned $1.26 billion in revenue, with earnings of $0.12 per share, just higher than analysts' estimates. Facebook's stock price continues to rise, hitting an increase of 9.2 percent in after-hours trading as of press time. Facebook closed the day at $19.50 per share.
To be clear, while revenues were up, the company actually lost $59 million (net income) in Q3.
"Looks like on the surface, results are a bit better than expected," Tom Forte, an analyst at Telsey Advisory Group, told Ars. "I'm hoping that they update that with commentary [on mobile]. I'd say I'm encouraged; let's hope they update the data point on Sponsored Stories and how that's monetizing. My initial response is favorable."
Prior to releasing the numbers, financial analysts had Facebook’s estimated quarterly revenue in the neighborhood of $1.2 to $1.26 billion, a slight bump from its Q2 figures of $1.184 billion in revenue.
Facebook has been under intense scrutiny since it debuted on Wall Street earlier this year, with its overall stock price down from its initial IPO price of $45 a share. On Monday, the day before earnings were announced, the stock was trading just above $19 per share. The company has seen a meteoric rise in its user base (recently surpassing one billion users globally), but nevertheless the rate of near-term revenue growth is plateauing.
Revenues from Zynga—which continues to falter, and announced layoffs earlier Tuesday—comprised only 7 percent, down from 12 percent last quarter.
"In the call with investors today, all of the executives mentioned needing to improve on and expand in all these categories and while Facebook loves social games they want to make sure many other game developers are successful as well," Brian Blau, an analyst with Gartner Research, told Ars.
"If Zynga was able to keep users playing their games then they would have contributed a bit more revenues, but that’s not the case and its clear that Facebook has the ability to replace that revenue with other partners. Unless Zynga can turn their decline around they will continue to contribute less to Facebook's bottom line."
Making money from mobile users
Last week, Google released disappointing earnings figures (largely due to its acquisition of Motorola), and many industry watchers wondered if Google’s slowing revenue said something larger. Are there problems with respect to online and mobile ad revenue across the entire sector? (Granted, Google, in terms of market capitalization, is worth more than five times as much as Facebook.)
Facebook is well-aware of its need to make money off of its rapidly-growing mobile user base. In the company's Q3 2012 SEC filing (PDF), CEO Mark Zuckerberg called mobile users "more engaged." Facebook rolled out its first mobile ad platform earlier in 2012.
The company's latest figures show that it made $150 million (14 percent of total earnings) off of mobile users, with only 60 percent of users even accessing the service through a mobile device, and less than 20 percent of the total number of minutes spent on Facebook.
"They aren’t monetizing as well as desktop, but it’s early innings, and they are definitely showing the potential to monetize as well," Michael Pachter, an analyst with Wedbush Securities, told Ars.
Still, it's an industry-wide conundrum.
“Ads on mobile are important to [Facebook and Google, and] weakness in ad rates for mobile is an industry problem—so is effectiveness of the mobile ads, which tend to be less interactive and less engaging—and Facebook also faces those same challenges,” Blau also told Ars.
“Given this is only Facebook's second earnings release and their mobile ad products are relatively young, we are still learning more about their business versus Google.”
That said, one day before the earnings report, TBG Digital, a UK-based online advertising firm, found that click-through rates (CTR) for American Facebook users jumped by 99 percent, as the cost-per-click rates (what it costs a company to get a user to actually click on an ad) have fallen to the lowest levels in two years.
Still, TBG noted what many online advertisers have lamented: few people click online ads to begin with. The ad agency estimates a CTR of just 1.468 percent for mobile and desktop ads—meaning that for every 100 times an ad is displayed, it’s clicked less than two times.
Analysts: Wait for it, wait for it...
Analysts appear to be confident that while Facebook may have some immediate struggles—particularly with respect to making money off of the rapidly growing mobile segment, an expansion of the pool of available shares as lockup agreements expire, and decreased income from the collapsing Zynga—they remain overall bullish on the company’s prospect.
“Facebook has immense value, which may not be readily apparent from its near-term earnings, but which is substantial nonetheless, in our view,” Pachter wrote in a pre-earnings note to investors.
He noted that because Facebook has such a large user base, even by making as little as $5 annually in advertising off of each user, the company is on track to take in $5 billion in revenue by the end of 2012.
“We believe that the company will ultimately grow its revenue per user to around $1/month, or $12/year,” he added. “It seems to us eminently reasonable that Facebook can count on generating revenues from its users for many years, so that the lifetime value of a user is likely somewhere around 5x revenues. Accordingly, we are unscientifically assigning a valuation of 5x revenues to a hypothetical future user base.”
Despite Facebook’s stock price closing at $19.50 on Tuesday, other analysts agreed that stock wasn’t necessarily a reflection of the health of the company.
“I’m optimistic on the performance of the stock long-term,” Forte said. “But you could see this thing remain under pressure and that’s where we’re at—that would be the risk of owning the shares over the next three months versus the next 12 months.”
Source: by Cyrus Farivar / http://arstechnica.com/business/2012/10/facebook-remains-on-track-despite-googles-financial-setbacks/
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