Mobile Video Ads Lift Facebook as Revenue, Daily Users Continue to Grow

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Facebook's revenue topped analysts' projections, boosted by video advertising and sales from Instagram.

Third-quarter sales grew 56% to $7.01 billion, the company said Wednesday in a statement. That compared with analysts' average estimate of $6.92 billion. The company drew 84% of its advertising revenue from mobile phones, unchanged from the prior quarter.

It's the sixth straight quarterly revenue beat for Facebook, which has increased sales by more than 50% the past four quarters. As the company expands into new areas like virtual reality and mobile messaging, its consistent performance is tied to its main advertising business on mobile phones. Facebook expanded that business to Instagram, its photo-sharing application, which has started to contribute to the growth.

"So long as the core business remains as strong as it is, the overall thesis doesn't change much -- they have a ton of opportunity," Ben Schachter, an analyst at Macquarie Securities, said before the earnings report. "Mobile just continues to absolutely dominate for them."

The company increased its monthly active users 4.7% from the previous quarter to 1.79 billion, topping analysts' estimates of 1.76 billion. Daily users rose to 1.18 billion.

The company doesn't break out Instagram's sales, but the app's advertising revenue is growing faster than for Facebook's main product, David Wehner, the chief financial officer, said in an interview. Still, Facebook's app was the bigger contributor to sales growth in the quarter, he said.

"It's the continued strength of advertiser demand," Wehner said of what drove the quarter. "We're seeing strength across all geographies, market segments and verticals."

Chief Executive Officer Mark Zuckerberg is taking advantage of Facebook's blockbuster ad growth to spend in other areas, like virtual reality and connecting the world to the internet -- bets that may not contribute to financial performance for a decade or two. Meanwhile, in addition to Instagram, the company has two chat apps, Messenger and WhatsApp, with more than 1 billion users each. Facebook is testing models for making money from the properties, such as letting users talk to businesses to book trips or send flowers.

The company is driving the growth in digital advertising spending, along with Alphabet's Google. The companies captured 68% of digital ad spend in the first half of this year, an increase from 61% a year ago, according to the Interactive Advertising Bureau, a nonprofit industry group.

"The two companies are capturing the equivalent to all of the growth in the industry and then some, leaving crumbs for everyone else to fight for," said Brian Wieser, an analyst with Pivotal Research Group. "It's kind of boring at this point."

Profit, excluding some items, was $1.09 a share, compared with analysts' estimates of 97 cents. The company reported net income of $2.38 billion, or 82 cents a share, from $896 million, or 31 cents, a year earlier.

-- Bloomberg News