UPDATED 07:15 EDT / JANUARY 30 2013

NEWS

Has Mobile Finally Paid Off for Facebook? Sure Looks That Way

After months of humiliation on Wall Street as its stock price went from bad to worse to embarrassing, Facebook raised quite a few eyebrows with an impressive Q3 performance in the area that matters most – mobile. Now, expectations are high that the company will build on those impressive gains when it releases its Q4 earnings later today.

Facebook’s problems with mobile were actually quite apparent long before its disastrous IPO, with the company even admitting before going public that its mobile operations “do not currently directly generate any meaningful revenue.”

Mobile has arguably borne the brunt of the blame for the collapse of Facebook’s share price. After all, the admission that its mobile operations were ‘practically worthless’ meant that the company was failing to generate revenue from a huge (and rapidly growing) chunk of its user base. That kind of sloppiness doesn’t particularly impress investors. Facebook’s mobile struggles, amplified by concerns about the company’s high spending, sent the company’s stock price tumbling down to almost half the original $38 a share just weeks after it began trading.

But what a difference a few months can make. Facebook has since set mobile as its highest priority, beginning the push with the launch of its vastly improved iOS app that began prompting users with ads such as “sponsored stories” and nudging them to ‘like’ company pages. The results speak for themselves, with Facebook reporting a vast improvement in mobile, which accounted for 14% of its Q3 revenues ($152 million), while growing its mobile user base by 61% to some 604 million active users.

Bright Future Ahead?

Now expectations are sky-high, with Bloomberg reporting that Facebook’s ad revenues are likely to grow by 34% when it unveils its Q4 results. Once again, all eyes will be on its mobile earnings, which Bloomberg estimates should jump by 11% since the previous quarter. 

One reason for this optimism is an earlier report by EMarketer Inc., whose projections show an astonishing rise by Facebook to overtake Google itself as the leader in the US mobile display-advertising market for 2012 – bear in mind that Facebook had zero share of the market in 2011. Elsewhere, the research firm Trefis was extremely optimistic in its own preview, stating that it expects Facebook to make “significant progress in ramping up” its mobile ad business.

Further evidence comes from Spruce Media, a company that facilitates advertising on Facebook for companies. Its data highlights exactly why Facebook’s mobile ad platform is so appealing right now, with the cost of 1,000 views by users (the key metric for display ads) on Facebook averaging $0.38 cents, compared to an average $5.21 on other mobile advertising platforms.

Then of course, we have Mark Zuckerberg himself, who has never professed to being worried about Facebook’s mobile ad performance. Last October he dismissed concerns, stating that “our opportunity on mobile is the most misunderstood aspect of Facebook today”, adding that the company’s previous poor performance was because they “weren’t really trying yet.”

But it’s clear for all to see that Facebook is trying very hard now, and its efforts are paying off handsomely.


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