Facebook Mobile + Graph Search Are Great, but Need Infrastructure Investment

Facebook posted its fourth quarter earnings yesterday, showing that much of its growing success is attributed to mobile and advertising.  That’s a good sign for Facebook and its investors, who had grown wary of the social network’s downward turn in stock prices shortly after launching its IPO.  As Facebook’s stock begins to stabilize  investors will need to keep in mind the long-term approach CEO Mark Zuckerberg is laying out for his company, which will require significant investment in infrastructure to support monetization schemes around mobile, search and ultimately advertising.

The company’s revenue Q4 2012 totaled $1.585 billion, a 40 percent increase compared to the $1.13 billion in the fourth quarter of 2011.  Advertising constitutes 84 percent of total revenue or $1.33 billion which makes it Facebook’s main income source with payments and other fees trailing far behind at only $256 million.

Facebook’s ad revenue is also dictated by users’ geographical location.  US and Canada remains Facebook’s huge revenue generator as it brought $780 million in Q4 while Europe, Asia and the rest of the world brought $440M, $198M  and $167M.

Mo’ Mobile


Another factor in Facebook’s increased ad revenue is mobile users.  In Q4 2012, Facebook has 680 million mobile monthly active users, a 57 percent year-over-year increase.  The social giant also noted that mobile has indeed changed the behavior of users as there are 157 million people who only use Facebook on their mobile devices.

“In 2012, we connected over a billion people and became a mobile company,” said Mark Zuckerberg, Facebook founder and CEO.  “We enter 2013 with good momentum and will continue to invest to achieve our mission and become a stronger, more valuable company.”

Facebook’s cost and expenses increased by 82 at $1.06 billion compared to Q4 2011.  Excluding share-based compensation and related payroll tax expenses, non-GAAP costs and expenses were $849 million, an increase of 67 percent.

The Promise of Search, Advertising lies in Infrastructure


Though the company posted huge numbers, SiliconANGLE CEO John Furrier stated that it is “very light,” but noted that there are a couple of things going on for Facebook, including mobile and the recently introduced Graph Search.

“Facebook will print money with Graph Search.   I’ve never been wrong on my Facebook prediction going back to the first in 2008.Facebook will crack the code on “discovery” in social networks that will translate into a positive user experience “transactions.”  This will throw off massive revenue,” Furrier stated.

Graph Search certainly came at the right time for Facebook, as the social network continues to find the best fit for revenue generation, consumer Services and advertising.  It will require a great deal of infrastructure and data analysis on Facebook’s part, which is why investing in the data center is a smart move for Zuckerberg’s company.  This is an important detail for investors to keep in mind, as Facebook lays the groundwork for the future.  It’s a long term investment, Wikibon analyst Jeff Kelly points out.  “There’s huge opportunity here,” Kelly says, speaking on Services, advertising and other channels that will require more from Facebook’s infrastructure.

To see Kelly’s full analysis on Facebook’s earnings, their growing infrastructure and where mobile fits into all of this, see the video below.