Facebook, like Google, has become a money-printing business.
For the sixth straight quarter, Facebook's revenue from advertising has grown by more than 60% over the same period the year prior. The figure climbed by 64% in the third quarter to $2.96 billion. Also for the sixth straight quarter, the company's overall revenue increased by more than 50%; this time by 59% to hit $3.20 billion and beat analysts' estimates.
Three years after concerns that Facebook couldn't make money from mobile, the social network continues to make more and more of its money from mobile. In the third quarter 66% -- or $1.95 billion -- of Facebook's revenue came from mobile, up from a 62% share in the second quarter and a 122% jump in mobile revenue from a year ago. And more and more people are checking Facebook on their smartphones or tablets. Each month 1.35 billion people checked Facebook during the third quarter, and 1.12 billion did so on a mobile device. And growing number of those people -- 456 million -- are checking Facebook only on their mobile devices.
Yet Facebook remains a much smaller -- and, of course, much younger -- business than Google. While the two are widely considered each other's biggest rivals for digital ad dollars, the search giant made roughly five times as much money from advertising in the third quarter as the social network did. That's why Facebook has spent much of 2014 laying the groundwork to close that gap.
Facebook's most obvious revenue opportunity remains its international audience. There's a big gap between where Facebook makes its money and where its users are. A year ago the U.S., Canada and Europe accounted for 73% of Facebook's ad revenue, but only 40% of the people who checked in on Facebook each month. A year later the divide grew a bit. In the third quarter of 2014, those regions again contributed 73% of Facebook's ad revenue but only 37% of its monthly audience.
Facebook would need to shrink its international divide to catch up to Google, which will take in 32% of all global ad spending this year compared to Facebook's 8%, per eMarketer estimates. That's why Facebook has modified its ad products for marketers to better reach international users who rely largely on feature phones and are mindful of their phone bills.
Then there's the money to be made outside of Facebook. Instagram's ad business is a year old, but not yet big enough for Facebook to say how much money it makes from the photo-sharing service it bought for $1 billion in 2012. Facebook's $22 billion acquisition of mobile messaging service WhatsApp only closed a few weeks ago but is estimated to rake in $322 million next year from the annual $1 subscriptions its 450 million-plus users pay each year. And Facebook could recoup the $2 billion it paid for virtual reality headset maker Oculus VR whenever the company's hardware is available for purchase.
Facebook is also lining up its off-Facebook ad business. That's partially a release valve for Facebook's own ad business. But it's also a way to cut into Google's $3.43 billion network business, which isn't growing as strongly as it once was.
Wary of overwhelming its users with ads, in recent quarters Facebook has continually reduced the number of ads served on Facebook. That scarcity has driven up the average price an advertiser pays for one of those ads. In the third quarter, Facebook's average price per ad jumped by 274% year-over-year while the social network served up 56% fewer ad impressions than a year ago. During the company's earnings call on Tuesday, Facebook CFO David Wehner said a redesign of the relatively cheap ads appearing on its desktop site's right-hand column trimmed the number of ads shown and made them bigger, which contributed to the higher prices and lower volume -- as did the popularity of mobile where the right-hand ads don't appear. If prices continue to swell while volume dwindles, advertisers could be turned away by Facebook and turned off from buying its ads. So Facebook is beginning to set up ways to siphon those lower-priced ads elsewhere while holding on to the ad dollars.
This year alone Facebook has opened up a mobile ad network to sell ads within other publishers' mobile apps. It bought video ad-tech firm LiveRail to sell video ads on other publishers' properties. It relaunched the Atlas ad server it acquired from Microsoft last year to measure ads shown outside of Facebook. And it has an automated ad-buying tool in the works for advertisers to purchase ads on others' sites programmatically through Facebook. All four of those compete directly with similar businesses run by Google.
