Coverage: Facebook’s earnings beat expectations

Social media company Facebook reported second-quarter earnings on Wednesday that blew away Wall Street expectations due to rapidly rising ad revenues, sending its stock price skyrocketing.

Jessica Guynn of USA Today had the news:

The social-media giant has topped Wall Street estimates all but once since its May 2012 initial public offering. The secret to its nearly unblemished earnings streak: Scorching growth in mobile advertising fueled by video spots and ads that target the growing number of people flocking to Facebook and its Instagram app.

“They knocked it out of the park again. Massive user growth combined with fantastic monetization,” said Jan Dawson, chief analyst with Jackdaw Research.

Facebook served up the good news with a side of caution. Facebook’s finance chief David Wehner warned analysts the Silicon Valley company would not keep up this torrid pace in the second half of the year, when it will face tough year-over-year comparisons. That’s because Facebook increased the number of ads users saw in their News Feed in the latter half of 2015.

“We think we’re in a good zone on the right ad load and we do think there’s opportunity to grow that modestly,” Wehner said during a conference call with analysts. “But, as we look forward into 2017, we think it will be a less significant factor driving inventory growth.”

His warning didn’t spook Wall Street, at least not that much. Shares rose 5% in extended trading as investors digested Facebook’s second-quarter results. It ended Wednesday’s regular session up 1.8% at $123.34.

Josh Constine of TechCrunch noted that Facebook hit a record number of users:

The social network continued steady growth just slightly slower at 3.63% compared to last quarter’s 3.77%, adding 60 million monthly users this quarter to reach 1.71 billion. It scored $6.44 billion in revenue and $0.97 EPS, blowing past estimates of $6.02 billion and $0.82 EPS.

This is Facebook’s 16th beat out of 17 quarters since it went public at $38 per share. Wall Street reacted to the positive earnings with a 7.5% bump in after hours trading to $132.60. It also hit another milestone: 1 billion daily mobile user.

Revenue growth was 59% year over year, which looks favorable compared to competitor Twitter, who yesterday announced its YOY revenue growth sunk to 20% from 60% a year ago. With 84% of ad revenue from mobile, total ad revenue was $6.24 billion.

Though the big monthly user count gets the spotlight, Facebook’s daily active user count is a better measure of its health. Total DAUs reached 1.13 billion up 17% for the year, with 1.57 billion mobile MAUs up 20%. What’s especially remarkable is that Facebook’s stickiness, or DAUs divided by MAUs, stayed steady at 66%. That means people aren’t using Facebook less even as it grows and ages.

Kathleen Chaykowski of Forbes focused on Facebook’s ad sales growth:

Revenue in the second quarter, ending June 30, rose about 59% to $6.44 billion, from $4.04 billion in the same period a year earlier, topping the $6.02 billion expected on average among analysts polled by Yahoo Finance. The gains were driven by Facebook showing more mobile ads at higher prices, especially video ads. Mobile ad revenue represented about 84% of total sales in the latest quarter, up from 72% in the same period a year earlier. Facebook’s global ad revenue is expected to total $23.31 billion this year, according to forecasting firm eMarketer, making Facebook the largest ad publisher after Google. (Facebook’s intent to be a search tool is clear, and now more than 2 billion searches are made on the platform daily.) Globally, each Facebook user will generate an estimated $15.83 for the social media giant this year, eMarketer said.

The company posted a profit of $2.1 billion, or 71 cents a share, beating analysts’ estimates of 57 cents and up 186% from a year-earlier profit of $719 million, or 25 cents a share. Excluding certain expenses, Facebook said it would have earned $2.82 billion, or 97 cents a share, easily topping forecasts of 82 cents a share on that basis. (See the full results here.)

Facebook has found success showing more ads on its main app without dampening user activity, but will need to closely watch this balance moving forward. There are now more than 3 million active monthly advertisers on Facebook, up from 2.5 million at the end of 2015. RBC Capital Markets analyst Mark Mahaney expects both the number of advertisers and spend per advertiser to increase. For Facebook, the presidential election and summer Olympics will likely be ad revenue boons.