Facebook’s Mobile Progress Comes at a Cost

Ever since Facebook launched its IPO, Wall Street has exerted pressure on the social network to deliver massive amounts of revenue.

When Facebook launched its IPO back in May 2012, analysts identified the newly public company’s potential Achilles Heel: mobile devices. With more and more people using their smartphones and tablets as their primary computing device, they said, Facebook needed to figure out a way to monetize mobile if it wanted to grow in a way that would please Wall Street.

A little more six months later, it seems that Facebook is well on its way to cracking that particular puzzle: for the fourth quarter, advertising revenue from mobile topped 23 percent of the company’s total financial haul. “A lot of what we had to do last year was simply to improve our mobile development process; now we’re there,” Facebook CEO Mark Zuckerberg told investors and analysts on the company’s most recent earnings call, according to a Seeking Alpha transcript. “We move fast and ship new versions of our apps on a regular monthly cycle.”

Roughly 680 million Facebook users accessed the social network via mobile, a year-over-year increase of roughly 57 percent. The number of daily active users using Facebook via mobile also exceeded those using the Web.

“This solid progress on the mobile advertising front should be applauded,” Eden Zoller, principal analyst at Ovum, wrote in a research note after Facebook released its most recent quarterly results, “as a key challenge for Facebook has been how to monetize its growing mobile user base, particularly as an increasing number interact with the platform by only via mobile devices.”

He added: “There will be growing pressure for Facebook to monetize Graph Search over the coming quarters and the most obvious way it could do so is via sponsored search.” He also hinted that the company was a bit too quiet on its progress on monetizing gifts and games.

Graph Search is Facebook’s just-unveiled feature for searching for posts, photos, friends, and other information. Unlike the current version of Facebook’s search bar, Graph Search will allow users to make lengthy natural-language queries in search of information; for example, someone interested in recruiting a tech worker might type in something like, “Friends of friends who live in New York and work as Google engineers.”

Graph Search and new-and-improved mobile apps are just two of the recent developments in Facebook’s strategy. Other recent initiatives include a VoIP service for its iPhone app, along with its acquisition of photo-sharing service Instagram.

Facebook’s aggressive build-out may have helped its fourth-quarter revenues increase by 40 percent year-over-year, to $1.585 billion. But that push also came at considerable expense: costs for the quarter topped $1.06 billion, a year-over-year increase of 82 percent. Zuckerberg cautioned during Facebook’s earnings call that expenses would “grow at a faster rate” than revenue in 2013, which “means that we aren’t operating to maximize our profits this year.”

So Facebook’s beginning to crack its enormous mobile-revenue conundrum. But it’s an open question whether Wall Street will look kindly at Facebook burning tons of cash to remain competitive.

 

Image: lev radin/Shutterstock.com

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