Mobile and Measurement Give Facebook a Winning Q1

Facebook is in early talks with advertisers about adding premium video advertising to News Feeds, the company said during its earnings call yesterday. It also acknowledged it’s in early tests of a mobile ad network, and laid out the vision for ads on Instagram and WhatsApp.

Facebook beat analysts’ expectations with an 82 percent increase in ad revenue over Q1 2013. Revenue from advertising in the first quarter of 2014 was $2.27 billion, with mobile ads contributing approximately 59 percent, compared to 30 percent in the same quarter of 2013. This was the strongest growth in ad revenue in three years, the company said.

Chief operating officer Sheryl Sandberg said on the company’s earnings webcast that mobile gaming, e-commerce, and consumer packaged goods advertisers made strong contributions to ad revenue last quarter. The company plans to keep the momentum by focusing on three areas, she added: developing new ad products and improving targeting, simplifying tools, and improving measurement.

Sandberg noted that 10 times more advertisers are now using targeting, pointing to Ben & Jerry’s use of custom audiences and partner categories to reach 14 million premium ice cream buyers, with 90 percent of the target using mobile devices. The campaign resulted in an 8.1 percent sales lift.

She said that Facebook is now offering tools including custom audience and partner categories to self-service advertisers, while adding “buy now” and “install now” buttons.

Facebook will develop premium video ads, as well as ads on Instagram, she said, but the company does not expect “meaningful contributions” from either this year. She did say that premium video advertising offers a big opportunity. Click-to-play video ads are currently sold on a cost-per-mille (CPM) or cost-per-click (CPC) basis, and Sandberg said that those ad sales explain some of the strong growth in ad revenue. Now, Facebook is in early conversations with advertisers about CPM-based autoplay video ads, but she added, “We want to see autoplay videos be pretty common in consumer News Feeds before we push for ads.”

On the earnings webcast, company executives discussed the possibility of ad monetization of acquisitions WhatsApp and Instagram, as well as home-grown Messenger. Chief executive (CEO) Mark Zuckerberg said that Facebook has been focusing on friends and public content for monetization. “With Messenger, we may do more things in private content,” he said.

Zuckerberg noted that Facebook apps and services are in different stages of maturity, with the Facebook app the furthest along and the core of the business. While Messenger, Instagram, and WhatsApp are now at the scale of millions, he said, “We’ll focus on getting them to 1 billion each before looking at monetization. They are probably a few years away from being big and important businesses for us.”

While the total number of impressions on Facebook has decreased, the average price of an ad increased due to more ads being shown in News Feeds. These have higher engagement than right-hand column ads, according to chief financial officer David Ebersman, who has resigned, and will be replaced by David Wehner, currently Facebook’s vice president of corporate finance and business planning.

Sandberg said, “The data suggest ads are getting more relevant but there’s a long way to go.”

Despite predictions that Facebook would lose its cool (and users), Facebook reported that daily active users were 802 million on average for March 2014, up 21 percent year-over-year. Daily mobile users increased 43 percent year-over-year to an average of 609 million.

Facebook’s share of social log-ins, a prime source of ad targeting data, fell slightly last quarter, according to Janrain, from 45 percent to 42 percent, while Google’s share of log-ins rose to 38 percent.

But Zuckerberg argued that engagement on Facebook is very high: 63 percent of people who use Facebook each month use it every day, while more than 50 percent of users log on six out of seven days in a week.

Sandberg said that Facebook’s investments in measurement will continue to pay off, allowing the company to show advertisers comparative return on investment (ROI) as consumers spend more time on digital media than traditional media, driven by mobile usage. She said, “As consumer time and attention shifts, we think ad dollars shift, as well.”