Coverage: Facebook posts huge earnings, boosted by mobile ads

For the first time ever, Facebook posted $1 billion in quarterly profit Wednesday, proving the site is no longer just a social experiment.

The brainchild of Mark Zuckerberg beat Wall Street’s expectations with across-the-board increases, including year-over-year jumps in both mobile advertisement and monthly active active-users.

Jay Somaney of Forbes had details on the earnings beat:

Facebook reported results last night that couldn’t have been any stronger, beating even the most optimistic of estimates among Wall Street analysts.

The company reported revenues for the December quarter of $5.84 billion and earnings of $0.79 per share. Wall Street analysts had expected revenues of $5.37 billion and earnings of $0.68 per share. Mobile ad revenue reached $4.5 billion, up 81% year on year, and now accounts for 80% of total revenues. The adverse FX effects cost the company $320 million in revenues, continuing a trend in Corporate America that is feeling the pinch from a surging dollar. Average revenue per user (ARPU) was $3.73 versus expectations of $3.40, up 33% YoY and up 26% sequentially.

Now that’s a blowout.

According to the company, 1.59 billion people use Facebook each month with 1.04 billion using the site daily. In addition, Facebook users are watching 100 million hours of video on the site every day. The company now has 2.5 million active advertisers on the site with 50 million small business with their own company page on Facebook. WhatsApp ended 2015 with a billion monthly active users as well.

Instagram seems to be a huge driver of Facebook’s growth in ARPU and the $1 billion that the company paid back in 2012 to acquire Instagram seems a great move now. Sandberg said that 98 out of 100 of Facebook’s top advertisers also paid for ads on Instagram as well validating the purchase price even more.

Deepa Seetharaman of The Wall Street Journal laid out how the company efforts at monetization are just getting started:

Behind the investor enthusiasm: Facebook still has many untapped revenue drivers at its disposal, including video, messaging and virtual reality, analysts say. Facebook users watch 100 million hours of video on the social network every day, Chief Executive Mark Zuckerberg said during a conference call with analysts.

Facebook “made big strides” on Instagram in the fourth quarter, Chief Financial Officer David Wehner said in an interview.

Ninety-eight of the top 100 Facebook advertisers also advertised on Instagram in the fourth quarter, Chief Operating Officer Sheryl Sandberg said during a conference call with analysts.

“What they’re starting to prove is they can monetize Instagram as well as they have Facebook,” Mr. Mahaney said.

Beyond Instagram, Facebook now generates little revenue from its virtual-reality unit Oculus VR and its two messaging apps, WhatsApp and Facebook Messenger.

“This is all the very beginning, video is barely monetized right now and the other platforms are barely monetized,” said Jan Rezab, founder of Socialbakers, a social-media metrics company. “Video is only at 20% at what it can be.”

Yasmeen Abutaleb and Abhirup Roy of Reuters explained some of the “big bets” the company is taking to leverage its success:

Apart from focusing on mobile, Facebook has been ramping up spending on what it calls “big bets,” including virtual reality, artificial intelligence and drones to connect the remotest parts of the world to the Internet.

Chief Executive Mark Zuckerberg, who returned from two months of paternity leave on Monday, has said virtual reality represents the next major computing platform.

In January, Facebook began taking orders for a consumer version of the Oculus Rift, a head-mounted virtual reality unit.

The company has also begun monetizing some of its other units, such as photo-sharing app Instagram, which surpassed 400 million users last year and began selling ads in September.

Facebook said mobile ads accounted for 80 percent of total ad revenue in the quarter, compared with about 78 percent in the third quarter and 69 percent a year earlier.

“It’s much stronger ad growth than we were expecting,” said Ken Sena, an analyst at Evercore ISI.

Facebook’s service is not available for users in China but it can sell ads to companies there.

“It signifies the importance of what they’re providing to advertisers,” he said. “They’re making big investments and evidenced by their quarterly performance it seems to be working.”