Facebook has facilitated billions of 'likes', but getting Wall Street to like the business of running the world's largest social network has been difficult.
The company's disastrous IPO sent investors fleeing and Facebook's stock is still well off its debut price.
But with a laser-like focus on monetization, Mark Zuckerberg and company gave Wall Street reason to rethink Facebook's prospects after delivering better-than-expected third quarter results yesterday.
In Q3, Facebook's monetization efforts produced $1.26bn in revenue, a 32% year-over-year increase. That handily beat analyst expectations of $1.23bn in sales. And the company delivered on the bottom line too, producing 12 cents per share in profit (before certain costs), compared to expectations of 11 cents per share.
The results sent FB shares soaring more than 10% in after-hours trading, providing some welcome relief to employees and remaining IPO investors who have seen the value of their shares battered.
So is Facebook's third quarter as solid as it appears, and is it a sign that the worst is over for the company as a publicly-traded business? Not quite.
Facebook can breathe a sigh of relief having beat analyst expectations, but it's worth keeping in mind that those expectations had largely been lowered in the wake of the company's performance last quarter. And beating those lowered expectations doesn't mean that Facebook has solved the fundamental challenges it faces:
- While advertisers are clearly continuing to invest in Facebook, much of the company's growth is coming from international markets where users are of arguably less value to brand advertisers. If Facebook is successful in attracting the next billion users, they will almost all have to come from emerging markets, something that could have an interesting and not-all-positive impact on the company's financial profile.
- On the mobile front, the company reported that 14% of ad revenue in the third quarter came from mobile. That's a start, but it's hardly convincing given that well over half of Facebook's monthly active users (MAUs) now come from mobile. All told, mobile MAUs rose 61% year-over-year in Q3 to 604m, but with less than a fifth of ad revenue coming from mobile, it is clear that Facebook still has a big mobile numbers problem.
- Outside of mobile, and advertising at large, revenue from payments and other fees rose a modest 13% year-over-year, and declined 9% quarter-over-quarter. While Facebook has launched new products, like Gifts, that could bolster this revenue, the company's financial results suggest that hopes around payments and commerce are still premature, especially in light of the ongoing carnage at one of Facebook's most important current sources of payments revenue, Zynga.
If anything, Facebook's third quarter financial results confirm one thing: Facebook is a real business, and isn't facing an imminent decline any time soon. But they also confirm another thing: Facebook isn't the $100bn business some had thought it was just a number of months ago.
The big question now: can become a $100bn business? We likely won't know the answer to that for several years, but now that Facebook has regained its balance, it should be able to more easily focus on trying.