Why Facebook Isn't Dying: Ad Revenues Grow 76%

Some headlines cite the loss of teens on Facebook as an indicator of its coming collapse. But what do Facebook's ad revenue numbers say about its future?

Feb 1, 2014 at 9:08AM

Facebook (NASDAQ:FB) fired back at the researchers predicting its demise with some impressive 2013 numbers.

This reality check followed two academic studies in the past few months suggesting Facebook was "dead and buried" among UK teens, and equating Facebook's future to that of social networking has-been MySpace, which lost 94% of its value six years after News Corp. purchased it.

Yes, tween and teen use is important for the future of Facebook, but it's not nearly as vital as ad revenue. And the bottom line is no matter how uncool Facebook may be among teenagers, it's raking in gobs of revenue -- $7.87 billion in 2013. That's a jump of 55% over 2012 revenue numbers.  

And here's the most impressive number in my opinion: ad revenue climbed to $2.34 billion in Q4 of 2013, a 76% rise over Q4 of 2012.

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Ads are working
In his opening remarks, CEO Mark Zuckerberg reiterated Facebook's goal "to reach a point where the ads are as relevant and timely as the content your friends share with you." Although that's difficult to gauge, Facebook is doing its best with sentiment surveys to make sure its readers don't get turned off by increased advertising. Ad revenues suggest the company is on the right track.

Zuckerberg also said that increased ad volume on its News Feed had not hurt the click-through rates of the ads. According to Zuckerberg, these results "suggest our strategy of improving quality is working." He cited Facebook's commitment to quality advertising as the "best way... to improve the experience for people on Facebook, returns for advertisers, and our own revenue."

Strengthening mobile engagement
COO Sheryl Sandberg pointed to "strong mobile engagement" as the key driver for Facebook's future growth. She cited the fact that people are "spending more time on mobile devices and marketers are starting to shift their budgets to reach them."

Facebook's mobile numbers backed her up. In fact, mobile advertising comprised nearly 53% of Facebook's advertising revenues in the fourth quarter of 2013, a huge increase over the 2012 fourth quarter numbers, when mobile ads only accounted for around 23% of ad revenue.

More mobile users
CFO David Ebersam also cited mobile as a driver of growth. He noted that at the start of 2013, Facebook had more desktop users than mobile, but now the daily users on mobile surpass desktop users by 200 million.

Quarterly mobile ad revenue
Quarterly mobile ad revenue was up as well, from $881 million in Q3 to almost $1.25 billion in Q4 bolstered by seasonal growth. As Ebersham pointed out, ad impressions were down, but the average effective price per ad increased 92% compared to last year's numbers. He attributed the decline in impressions to the fact that mobile users see fewer ads because there's no right-hand column ads, which are displayed on desktops. This may or may not become an issue, depending on whether the price per ad holds up as mobile users increase.

The Foolish takeaway
In a nutshell, what matters most for investors in Facebook is not the sensationalized headlines proclaiming the decline of Facebook, but how many new users are joining (on a percentage basis, this is slowing a bit), becoming active users and clickers of Facebook ads. That's what will bring more advertising dollars to the company and ultimately drive revenue growth.

So far Facebook has done a good job of focusing on what makes it a viable business and not letting the naysayers' predictions distract it. As long as overall users and ad revenues continue to grow at a decent clip, the company should continue to thrive.

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Chris Brantley has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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