Facebook reported that 3,800 developers bought mobile app
install ads last quarter to drive 25 million app downloads.
"Every major brand, company or service wants to build apps as an
interface for their customers," said Facebook CEO Mark Zuckerberg.
"This market is already big and I expect it to grow quickly."
Overall, Facebook reported solid revenue of $1.46 billion last
quarter, up 38% from $1.06 billion a year ago. (It's down from Q4's
$1.59 billion, which was fueled by holiday spending.) Ad revenue
was $1.25 billion, or 85% of the total, while the balance of $213
million came from payments and fees.
Net income was $219 million, up 7% over the previous year.
Facebook's costs and expenses have risen 60% since the first
quarter of 2012 due to infrastructure investment and hiring. An
example of the former is the $1.5 billion data center the
company is building in Iowa.
The direction of Facebook's ad business has undergone a shift away from social in the past
year. It's launched a slew of new products and partnerships with
the likes of Acxiomand Epsilon to enable
targeting using offline data. It's also opened the door to a more
traditional, cookie-based approach to web advertising through the
Facebook Exchange, which relies on the scale of the network's user
base but doesn't incorporate social context like sponsored stories
FBX in particular has whetted the appetites of direct-response
advertisers, who can now place retargeted ads in users' news feeds,
where ads have the highest engagement.
However, it's unclear how much FBX or custom audiences -- the
capability for marketers to show ads to existing customers by
anonymously matching their emails or phone numbers to Facebook
users, which launched in beta last fall -- are currently
contributing to the company's top line. Facebook didn't break out
its revenue by ad product type.
"[FBX] is working well, but the volume is still relatively
small," said Simon Mansell, CEO of TBG Digital, a major Facebook
ads seller. He observed that roughly one out of every seven ads
that appear on the right-hand rail of users' news feeds are served
through the exchange. He also said adoption of custom audiences has
been relatively slow, since marketers often need to await approval
from their legal departments. (Facebook's chief operating officer
Sheryl Sandberg noted that the number of custom audiences
advertisers doubled last quarter over the previous one.)
There is considerable opportunity for the Facebook Exchange,
however. EMarketerestimates that U.S. advertisers will
spend $3.36 billion on real-time bidding this year, up from $2
billion last year.
360i'sCEO Bryan Wiener said that it's
still mainly client test budgets being allocated to FBX, as well as
custom audiences. But he expects the floodgates to open and for
Facebook to cannibalize performance-display budgets that are
currently allocated to the likes of Yahoo and AOL.
"If Facebook is successful here, it'll pop open a huge bucket of
ad dollars that have historically been off limits to it," he
Meanwhile, Facebook's quest to innovate in pursuit of the next
big thing could have implications for its profitability down the
As Facebook grows its head count, it's also making deep
investments in new products, and it remains to be seen whether
those bets will pan out or fall flat. Graph Search -- a search tool
designed to let users mine their social graph to learn which local
restaurants their friends have been to and what bands they like --
was launched with fanfare in January but is rolling out slowly.
It's to be determined whether users will take to it and how
Facebook would profit from it if they do.
And Facebook Home, an Android app that lets the social network
take over the home and lock screens of someone's phone, thus far
hasn't resonated with consumers, though Mr. Zuckerberg said today
that Facebook still hasn't promoted it much within Facebook's own
apps. Despite a major marketing campaign that
includes Facebook's first TV ads to support it, Home thus far has
an average rating of two stars out of five in Google Play.
Mr. Zuckerberg alluded to the resources being invested in these
"I want to be clear that we're making these big investments
because I think these are important areas for us to focus on," he
The company's acquisition of the ad server Atlas from Microsoft also closed
this week. Ms. Sandberg reiterated Facebook's position that the
goal is to build out its measurement
architecture and help it prove that impressions matter, not
"We believe the Atlas platform will help us demonstrate even
more clearly the connection between ad impressions and purchases,"
she said. "Not just on Facebook but across the Internet."