Many digital media companies have seen their ad revenues decline as their audiences have shifted to smaller screens. Not Facebook.
Three years after the social network started running ads on its mobile properties, mobile advertising accounted for 76% of Facebook's $3.8 billion in second-quarter advertising revenue, which was up 43% year-over-year. Facebook may have started as a desktop site, but it's become a mobile company from a business and product perspective as it continues to grow its audience, particularly on mobile.
"This quarter was our fastest community growth we've had in two years," said Facebook's COO Sheryl Sandberg in an interview with Ad Age before the company's earnings call on Wednesday afternoon.
In the second quarter, Facebook's total monthly active user base grew by 13% year-over-year while its total daily active user base grew by 17% year-over-year. Its mobile user base saw steeper growth, with mobile monthly active users up 22% and mobile daily active users up 29%.
That $2.9 billion in mobile ad revenue is impressive enough considering that advertisers will put the majority of their digital ad budgets this year toward desktop ads, per eMarketer estimates. But perhaps as impressive is the fact that not only has Facebook convinced brands to buy mobile ads but those brands appear to be paying more for those ads than they did when Facebook was a desktop-first company.
In the second quarter, the average price of an ad on Facebook rose by 220% while the number of ad impressions Facebook served dropped by 55%. That continues a trend that's been going on for the last seven consecutive quarters, including the second quarter of 2015, and is driven by mobile where Facebook only runs its more lucrative news feed ads as opposed to the cheaper right-rail ads that can be found on its desktop site.
"The big story is that our growth is very broad-based. We're seeing strong growth in brand, in direct response, in [small- and medium-sized business] and in developers," Ms. Sandberg said. She added that "video's a big part of the story." However Ms. Sandberg declined to say how much money Facebook makes from its video ads, ads on Instagram or ads that it runs outside of Facebook.
Thanks in part to Facebook's ability to sell fewer ads at higher prices, the company's overall revenue increased by 39% to $4.0 billion in the second quarter, beating analysts' estimates.
For a time, Facebook's mobile ad revenue rise was additive, as its desktop ad revenue continued to increase even after mobile surpassed it as the company's major revenue stream. But in the first quarter of 2015, desktop ad revenue declined by 4% year-over-year, and it fell again in the second quarter, this time dropping by 10% year-over-year.
Asked whether there were any factors for the desktop ad revenue decline beyond the broader mobile shift and whether the company's desktop revenue has peaked, Ms. Sandberg sidestepped the question and focused her answer on the mobile shift. "I think you're seeing a mobile shift, and you're seeing us invest behind that mobile shift. We think we have the best mobile ad product on the market," she said.