Facebook's Ad Business Rolls as Profits Top $10 Billion in 2016

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On Wednesday, Facebook released fourth-quarter earnings.
On Wednesday, Facebook released fourth-quarter earnings. Credit: Facebook

Facebook's ad intake is humming.

On Wednesday, the social network released its quarterly earnings, and showed its ad revenue hit $8.6 billion during the last three months of 2016. That represented a 53% jump from the same time a year prior. For the whole year, it generated $26.9 billion in ad sales, an increase of 57% from 2015.

Mark Zuckerberg's company also is making more money, topping $10 billion in profits for the full year in 2016 for the first time, increasing 177% from 2015.

Facebook also said it now makes 84% of its money from mobile ads, up from 80% in the fourth quarter of 2015.

Daily active users rose 18% year over year to 1.23 billion people.

Facebook continues to dominate the ad industry alongside Google as brands pour more money into the social network and its sister properties, such as Instagram and Messenger, and its audience network, where it targets ads to outside publishers.

"In the fourth quarter, Facebook spending was up 65% year over for our clients," said Mark Ballard, director of research at Merkle, an ad tech company that helps brands run campaigns on the social network and elsewhere. "The growth is far outpacing what we are seeing in more established channels like paid search."

That's a familiar story throughout the industry, and increasingly spend is starting to surge on Instagram, as well, Mr. Ballard said.

For the right brands, Instagram can account for 20% of their overall Facebook budgets, Mr. Ballard said.

Of course, not all advertisers are on Instagram. Also, Google is still far larger in terms of its advertiser base and overall revenue.

Facebook is trying to build its ad technology, Facebook Audience Network, to offer more ad inventory on partner publisher sites. It's also improving reporting and measurement capabilities after hearing from advertisers concerned by inaccurate data and a lack of transparency last year.

Video, too, is becoming a bigger part of Facebook's ad offering as it looks to serve more of that format in more places.

In its earnings call with analysts, Facebook discussed its strategy for helping video flourish on the platform, a goal that relies on getting better quality content and ads for the content.

"Creators need to get paid," Mr. Zuckerberg said.

Toward that end, Facebook said it would push new ad units, likely referring to the early tests of mid-roll commercials inside live and non-live videos.

"Our goal really is to kickstart an ecosystem of partner content," said Facebook Chief Financial Officer Dave Wehner.

Facebook said it would be investing more in video content, mostly by splitting ad revenue with the publishers and creators.

That was the first goal, but Facebook also has been interested in licensing content, and could be on the hunt for more scripted-type programming.

Mr. Wehner said that Facebook's expenses would grow this year by up to 50%, partly fueled by investments in content and infrastructure to host that content.

"Our mission to connect the world is more important now than ever," Mr. Zuckerberg said in the earnings announcement. "Our business did well in 2016, but we have a lot of work ahead to help bring people together."

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