Facebook Now Makes 62% of Its Ad Money in Mobile: What the New Earnings Mean
One day, if it wanted to, Facebook could shut down its desktop site and become a mobile-only company.
The majority of the social network's advertising revenue -- 62% of the $2.68 billion Facebook made from advertising in the second quarter, according to results it released on Wednesday -- already comes from mobile. And an ever larger percentage of its daily and monthly active users check out Facebook on their tablets or smartphones. At this point 30% of its monthly users only check out Facebook on their tablets or smartphones.
Two years after Wall Street batted down Facebook's initial public offering for the company's perceived mobile weakness -- and two years after Facebook debuted its first mobile ads and adopted a mobile-first strategy -- Facebook has become largely a mobile company. Two of the social network's largest acquisitions, Instagram and WhatsApp, are mobile apps. And a third, Oculus, makes a virtual reality headset that observers point to as Facebook's wearables play -- wearable devices being considered the next generation of mobile devices.
But Facebook doesn't have to be a mobile-only company, as its second-quarter results showed. It still makes a lot of money from desktop advertising. Converting what Facebook said is mobile's share of its ad revenue to actual dollars offers a look at how its mobile-only and desktop-only ad revenue has trended over the past seven quarters.
As the chart shows, Facebook's mobile ad revenue has grown by a lot. The company's desktop ad revenue is still growing too, but not by as much as it once did. Here is a chart showing how the two have grown year-over-year for the last three quarters.
To catalyze its desktop display revenue growth, Facebook has recently looked for ways to get advertisers to pay more for ads running on the social network. It has added video ads and a new way to target Facebook users based on what sites they check out outside of Facebook.
Facebook has been winding down the number of ads it shows people while raising prices to make sure the reduced ad volume doesn't shrink ad revenue. The company's average price per ad has increased by 123% year-over-year while the total number of ad impressions declined by 25% year-over-year, Facebook CFO David Wehner said during the company's earnings call on Wednesday.
A big reason that Facebook has been able to drive up ad prices and drive down ad volume is the location where users are finding those ads: in the news feed, especially on mobile. More of Facebook's ads are running in people's news feeds as opposed to the right side of the screen because there is no right rail on Facebook's mobile properties.
The news feed is also where Facebook's pricier and more popular ads -- the new video spots and ubiquitous mobile app install ads, respectively -- are running. Facebook hasn't opened the video ad floodgates yet; COO Sheryl Sandberg said during the call that only a dozen campaigns have run to date using the new video ads.
Ms. Sandberg also tried to shoot down the idea that Facebook is relying too much on mobile ads promoting other apps' installation. Mobile app install ads are "a good part of our mobile ads revenue" but not "all" or "a great majority," she said.
Mobile app install ads certainly make Facebook more money than the autoplay video ads, ads on Instagram and the company's nascent mobile ad network. The revenue contribution from each of those three products is expected "to remain small in the near term," Mr. Wehner said.
Facebook increased how much ad money it makes per user to $2.06 in the second quarter, up from $1.41 a year ago. Given that, and considering that Facebook's active user growth trajectory hasn't shown signs of slowing down, neither should its ad revenue.
But one day Facebook's user growth might peak, or advertisers not open their wallets quite so wide. To protect against that (or being forced to flood users with more ads to spur revenue), Facebook likely needs to start looking outside of Facebook. And it has.
Earlier this year Facebook resurrected its mobile ad network. That opened up Facebook to advertisers who want to buy mobile ads targeted by Facebook's powerful user data without limiting themselves to only running those ads on Facebook.
Then earlier this month the company agreed to buy video ad network LiveRail, which serves video ads on third-party publishers' sites for a cut of what advertisers pay. Those spots that are typically pricier than banner ads, and that cut will be Facebook's once the deal closes.
Facebook-owned mobile and video ad networks are ways for the company to make sure its ad revenue growth isn't overly dependent on user growth, but mobile and video might be just a start. Eventually Facebook could extend its third-party ad network to any type of digital ad, which would follow the playbook of digital-media giants such as Google, Yahoo and AOL that, like Facebook, depend overwhelmingly on ads.