Facebook Inc (NASDAQ: FB) Earnings News: Stock Jumps On Mobile Ad Growth

Facebook Inc. (NASDAQ:FB) shares jumped more than 5 percent on Wednesday in extended-hours trading after the social media giant reported fiscal 2014 second-quarter earnings of 42 cents per share, excluding items, on revenue of $2.91 billion, compared with a profit of 19 cents a share on revenue of $1.8 billion in the year-ago period.

Wall Street had expected the company to issue second-quarter EPS of 32 cents on revenue of $2.8 billion, according to analysts polled by Reuters.

"We had a good second quarter," Mark Zuckerberg, founder and chief executive officer at Facebook, said in the company’s second-quarter earnings statement. "Our community has continued to grow, and we see a lot of opportunity ahead as we connect the rest of the world."

Net income for the quarter ended June 30 jumped 138 percent to $791 million, compared to $333 million during the same period in 2013.

Revenue for the second-quarter of 2014 totaled $2.91 billion, an increase of 61 percent, compared with $1.81 billion a year earlier.

Mobile Ad Growth And Active Users

Facebook beat Wall Street earnings and revenue estimates thanks to its strong mobile advertising business that soared “over 151 percent year-over-year” and now makes up 62 percent of the company’s advertising revenue.

“It’s all about digital ads,” Keith Bliss, senior vice president and director of sales and marketing at Cuttone & Co., Inc. told IBTimes. “The big thing with Facebook is all about how are they acquiring new users onto the platform and how are they retaining new users.”

Facebook said daily active users on average for June 2014 were 829 million, an increase of 19 percent year-over-year. Meanwhile, mobile daily active users came in at 654 million on average last month, an increase of 39 percent compared to a year earlier.

As of June 30, 2014, the firm said monthly active users were 1.32 billion, up 14 percent year-over-year, and mobile active users rose 31 percent to 1.07 billion from the same period in 2013.

Meanwhile, revenue from advertising was $2.68 billion, a 67 percent increase from the same quarter last year. Mobile advertising revenue represented approximately $1.66 billion, or 62 percent of ad revenue, compared to approximately $660 million, or 41 percent of ad revenue in the second-quarter of 2013. Desktop ad revenue was up 8 percent from last year.

"That [mobile advertising growth] was the big complaint about Facebook three quarters ago,” Bliss said. “They seem to have rectified that situation.”

World Cup

Facebook also weighed in on how the World Cup this summer impacted their growth. The company said more than 350 million people made over 3 billion interactions during the global event. To enable even more of these conversations, Facebook said it improved the ranking of videos and newsfeeds and has launched new APIs (application programming interface) to help television and media organizations use Facebook content in their productions.

“It’s pretty impressive,” Mark Newton, chief technical analyst at Greywolf Execution Partners, said to IBTimes. “The company obviously makes money based on not only total number of users, but also interactions. I think they’re hitting on all cylinders.”

The World Cup final was the single most talked about sporting event in Facebook history, the company said during its earnings call, generating 280 million interactions from 88 million people.

Small Businesses And Brand Marketers

The company now has more than 30 million active small business pages and over 19 million of them are active on mobile. The social media giant also has 1.5 million active advertisers.

“We continue to focus one three key areas of investment: Capitalizing on the shift to mobile, growing the number of marketers using Facebook and building our ad products,” Sheryl Sandberg, chief operating officer at Facebook, said during the company’s second-quarter earnings call with shareholders.

In addition, the social media network is hosting “Facebook Fit workshops” within the U.S. in cities such as New York, Chicago and Miami to help small businesses, and it's also working with larger brands to recognize how the company’s scaled targeting and measurement capabilities can “help drive results.”

Facebook said the World Cup also provided an opportunity for brand building on the site, including companies such as Visa Inc. (NYSE:V), Nike, Inc. (NYSE:NKE), Ford Motor Company (NYSE:F) and McDonald's Corporation (NYSE:MCD).

“McDonald’s worked with agencies OMD, Framestore and Arc Sponsorship as well as Facebook’s Creative Shop to produce 30 videos that used French fries as players. “Fry Futbol” recreated the most spectacular World Cup moments and ran them as videos the very next day with the French fries acting as the players. This campaign reached 125 million people in 158 countries,” Sandberg said.

LiveRail, WhatsApp And Oculus Acquisitions

Earlier this summer, Facebook announced it agreed to acquire LiveRail, an advertising technology company founded in 2007 that helps companies such as Major League Baseball (MLB.com), ABC Family, A&E Networks, Gannett, and Dailymotion serve better ads in the videos that appear on their websites and apps.

“We have a lot to do here, but with LiveRail we are investing in tools that can help improve the relevance of video ads across the web,” Sandberg said.

In February, Facebook announced it reached a definitive agreement to acquire WhatsApp, a cross-platform mobile messaging company, for a total of nearly $16 billion, including $4 billion in cash and approximately $12 billion worth of Facebook shares. The company said during the conference call it expects to close the deal with WhatsApp later this year.

Additionally, Facebook closed its acquisition earlier this week of Oculus VR, a virtual reality technology company. Facebook ended the second-quarter with approximately $14 billion in cash and investments, which excluded the impact of the Oculus acquisition, and included an approximately $400 million cash payment.

Separately, Facebook made one of its biggest updates last month to the Instagram app, which the company acquired for $1 billion in 2012, by adding new creative tools that allow people to “refine exactly how their photos look and feel.” Facebook said Instagram has now passed over 200 million monthly active users and that it is still in the early stages of building advertising on the online mobile photo-sharing platform and expects revenue from its contribution to remain small in the near-term.

“We’re also seeing positive early demand from marketers for ads on Instagram, and we’re rolling these ads out carefully as well,” Sandberg said.

Forward-Looking Guidance

Facebook expects the company’s total 2014 GAAP expenses, including cost of revenue and stock compensation, will likely grow in the neighborhood of 30-35 percent. The social media company expects its total non-GAAP expenses, including cost of revenue but excluding stock compensation, will grow at a similar rate.

“We expect shares outstanding to grow from around 2.6 billion at the end of 2013 to approximately 2.9 billion at the end of 2014, again assuming WhatsApp closes by the end of the year,” Dave Wehner, chief financial officer at Facebook, said during the earnings call.

Facebook’s year-over-year growth rate declined from 72 percent in the first-quarter to 61 percent in the second-quarter, or 59 percent on a constant currency basis.

“We expect this trend to continue over the course of the second half of the year,” Wehner said.

Shares of Facebook rose 5.51 percent to $75.22 in after-hours trading on Wednesday following the company's earnings announcment.

Other notable companies reporting quarterly results on Thursday include Amazon.com Inc. (NASDAQ:AMZN), Starbucks Corporation (NASDAQ:SBUX), Pandora Media Inc. (NYSE:P), 3M Co. (NYSE:MMM), General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), Visa Inc. (NYSE:V), Hershey Co. (NYSE:HSY), Dr Pepper Snapple Group Inc. (NYSE:DPS) and Caterpillar Inc. (NYSE:CAT).