OLD Media Moves

Coverage of Facebook’s strong — or were they? — earnings

October 31, 2013

Posted by Liz Hester

Facebook’s earnings for the third quarter rose on the strength of mobile advertising, which as several outlets reported, was good for Twitter’s upcoming initial public offering. But coverage, especially the headlines on the stories, differed in what part of the earnings they chose to emphasize.

The New York Times story, which had a stilted lead about Halloween, ran using the headline “Mobile Ads Fuel a Jump in Profit at Facebook.”

Facebook, which operates the largest online social network, reported Wednesday that its profits doubled in the third quarter, to $621 million, after excluding expenses related to stock options.

The company’s revenue rose 60 percent, to $2.02 billion, compared with last year’s third quarter. Most of that, about $1.8 billion, came from advertising.

Perhaps most important for Facebook’s future as an advertising-driven company in a world of iPads and Android smartphones, the company noted that mobile ads accounted for 49 percent of its advertising revenue, up from 41 percent in the second quarter. Facebook said prices for mobile ads remained high, and users were clicking on them in their news feeds more frequently.

That bodes well, analysts said, for its smaller rival, Twitter, which takes a similar approach to mobile ads and is preparing to sell stock to investors in an initial offering as soon as next week.

Clark Fredricksen, a vice president with eMarketer, a research firm, said Twitter would benefit from Facebook’s efforts in mobile because the larger company had been investing heavily in educating marketers and users about mobile ads.

“Facebook has been a major force in helping advertisers and users get more comfortable with seeing and buying mobile ads,” he said.

Other big Internet companies like Yahoo and AOL are benefiting less from mobile ads, he said, because their ads are fragmented across various sites and are less appealing to advertisers.

The Wall Street Journal story pointed out in the beginning that investors were concerned by comments made during the report. Its headline was “Facebook Status: Big Gains, But Worries Ahead”:

Facebook Inc. spooked investors with warnings that it may be nearing the limits of one of its most important areas of revenue growth.

After reporting strong third-quarter financial results, Facebook executives told analysts that they may not be able to cram any more ads into users’ news feeds, and that U.S. teens are spending less time on the site.

Chief Financial Officer David Ebersman said Facebook doesn’t expect to “significantly increase” the share of ads in a user’s news feed from what it is now. The inclusion of ads into those feeds, last year, helped propel a big increase in Facebook revenue. Instead, Facebook will rely on improving the quality and relevance of the ads to drive up prices, he said.

Mr. Ebersman also said the number of U.S. teens using Facebook daily declined from the previous quarter. He called the decline “of questionable statistical significance” and said it is hard to measure the number of teen users on the network because their self-reported ages are unreliable.

Those worrisome signs overshadowed a better-than-expected earnings report that showed the company swinging to a profit on a 60% jump in revenue, topping $2 billion for the first time.

Despite those worries, the CNBC story ran using the headline, “Facebook Earnings Blow Past Expectations” and was incredibly positive:

Facebook topped Wall Street’s sales targets on Wednesday, as robust growth in its mobile advertising business drove a 60 percent increase in revenue.

Following the earnings beat, Facebook’s stock shot higher but erased gains after the company’s earnings call.

The Washington Post story also had a fairly positive headline – “Facebook earnings: Revenue up 60 percent as social network expands its mobile audience”:

Facebook reported a 60 percent jump in third-quarter revenue Wednesday, driven by the social network’s growing success in capturing a mobile audience.

The number of active monthly Facebook users climbed 18 percent overall during the quarter but spiked 45 percent on mobile devices. Advertising profits jumped 66 percent year over year, with 49 percent of that revenue coming from mobile.

Since its initial public offering last year, the firm has faced lingering Wall Street skepticism that it will develop a profitable advertising strategy. Wednesday’s earnings could help address some of those concerns.

After closing down slightly at about $49 a share Wednesday, the firm’s stock shot up 15 percent after the earnings report was released. The results beat analysts’ expectations.

It’s usually not a good sign when investors like the initial numbers and then decide the comments from the company are enough to sell the stock. Facebook will need to capture the eyeballs of younger users as well as find a way to increase advertising in order to continue to grow revenue. It’s the growth part that can be the curse for more mature technology companies. That’s only highlighted by the fact that the much younger Twitter will likely debut this week.

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