Facebook Inc. is starting to figure out mobile.
The one-billion-strong social network posted its third-quarter financial results on Tuesday, slightly beating analyst expectations. But more importantly, the Menlo Park, Calif.-based company is showing signs it can address what is widely seen as its biggest corporate weakness – an inability to generate money from users who access Facebook through mobile devices such as smartphones and tablets.
In previous quarters, the company has been largely unable to derive significant revenue from mobile ads, which are less effective on smaller screens. During the third quarter, however, Facebook began rolling out ads in its mobile applications, part of a massive overhaul of the way it handles advertising across the site. That effort appears to have paid off, as mobile ads now account for 14 per cent of total Facebook revenue.
"We should be able to reach more people on mobile than desktop – for us, that isn't really controversial," said Facebook founder and CEO Mark Zuckerberg, who dedicated most of his opening remarks on the earnings conference call talking about opportunities in the mobile space. "We're just getting started."
Excluding share-based compensation, Facebook posted profit of $311-million (U.S.) or 12 cents a share – about a penny more than the average of analysts' expectations, according to Thomson Reuters. Revenue of $1.26-billion – a 32-per-cent increase from the same quarter last year – was also slightly better than expected.
But it wasn't the revenue number that sent Facebook shares soaring as much as 10 per cent in after-hours trading. Indeed, there are plenty of signs that Facebook's once meteoric growth rate is starting to slow.
Rather, investors were likely more pleased with where the money is coming from. In addition to the fact that 14 per cent of revenue comes from mobile devices, 600 million people now share content on the site using mobile devices.
Advertising now accounts for 86 per cent of Facebook's revenue, up from 84 per cent in the previous quarter. The company previously treated advertising as a separate department, but it now hands responsibility for advertising over to the heads of each of Facebook's individual product teams. As a result, those teams are now designing ad services that are tailored exclusively to the products they build.
However, other parts of the business aren't doing as well. Payments from third parties, such as social games developers, declined 9 per cent.
That's largely due to the waning fortunes of Zynga, Facebook's single biggest game-building partner. Facebook's earnings announcement came just a few hours after Zynga announced a massive round of layoffs. Zynga, which builds social games that run on Facebook and is responsible for some of the most popular games on the site, quietly shut down several of its development studios on Tuesday afternoon. The move comes after the company slashed its outlook earlier this month, and has seen its stock price lose almost 80 per cent of its value in the last year.
Mr. Zuckerberg acknowledged that payment revenue from Zynga has plummeted 20 per cent over the last quarter, even as revenue from all other game developers has gone up. "Gaming on Facebook isn't doing as well as I'd like," he said.