Growth of Mobile Ads on Facebook Augurs Well for Twitter IPO

Facebook gets 49 percent of ad revenue from mobile, but may lose teens to rival mobile apps.

A Facebook employee holds a phone that is running the new 'Home' program during an event at Facebook headquarters on April 4, 2013 in Menlo Park, California.
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Mobile advertising is now 49 percent of Facebook's advertising revenue, which highlights mobile advertising opportunities for rival social media icon Twitter as that company plans an initial public offering of stock. But it also highlights the competition between social networks and a wave of new mobile applications.

Twitter is planning an initial public offering of stock as soon as Nov. 6, and hopes to prove to investors that it can profit from the growth of the mobile advertising market. A positive quarterly earnings report published by Facebook on Wednesday highlighting profits to be made in mobile advertising might keep investors on board and avoid the lack of confidence in the stock that Facebook faced during its IPO, says Brian Blau, a research director at Gartner technology analysis firm. After going public in May 2012, Facebook faced intense pressure from investors, forcing the company to develop its revenue strategy. The stock slumped before rising above its IPO price in July of this year.

"Twitter has a different user demographic and user interface, which could change the dynamic on mobile advertising," Blau says. "With Facebook doing well it eases the pressure investors put on Twitter. If I was an astute investor I would not link the businesses. If Facebook did poorly or met expectations that could have created investor caution in Twitter."

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People will spend more time watching digital media than watching TV during 2013 for the first time, according to a report in August from eMarketer research firm. In the U.S. Facebook, including Instagram, gets 1 in 8 minutes people spend on desktops but 1 in 5 minutes on mobile, Facebook Chief Operating Officer Sheryl Sandberg said during an earnings call Wednesday.

During its call earnings call explaining the third quarter of 2013 on Wednesday, Facebook reported a profit of $425 million, having recorded $2.06 billion in revenue, which was an increase of $1.26 billion compared with the same period in 2012. Facebook's 60 percent revenue growth compared with the same quarter in 2012 outperformed a consensus estimate by analysts compiled by Thomson Reuters that expected the social network to report $1.91 billion in revenue.

Facebook is well-positioned to benefit from consumers shifting to media on mobile devices following the introduction of new mobile News Feed ads in 2012, Sandberg told analysts.

"We believe that we have the best mobile ad product because our ads are an integrated unit in News Feed, where people spend the most time on Facebook," Sandberg said. "As people shift where they spend their time, marketers are starting to follow. Our results today show that we're benefitting from this shift to mobile and we believe that this shift will continue and will continue to benefit us. Today mobile represents 12 percent of consumer media time, but it's still only 3 percent of ad budgets."

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The growth of mobile advertising also highlights how Facebook needs to stay hungry as new mobile applications define the next era for digital companies. David Ebersman, the company's chief financial officer, reported that daily use of Facebook decreased, "specifically among younger teens."

"We'll continue to focus our development efforts to build products that drive engagement for people of all ages," Ebersman said.

That ability to innovate and respond to market trends will help Facebook stay popular, but the social network does face competition from increasingly popular mobile applications including Snapchat and the wave of new apps being created each month, Blau says. Facebook's user interface linking people with reciprocal friends could also be turning off the next generation in some parts of the world, Blau says.

"There may be brand loyalty issue," Blau says. "It's hard to tell if that brand loyalty has to do with the social networking or because people are distracted and trying out new content."