LIVE: Facebook Shares Soar As Q3 Ad Revenue Growth Accelerates

DAVOS-KLOSTERS/SWITZERLAND, 30JAN09 - Mark Zuc...

Facebook CEO Mark Zuckerberg (Photo: Wikipedia)

From my Forbes.com blog The New Persuaders:

After a rocky several months following its May IPO, Facebook finally provided some good news today as it reported third-quarter financial results that outpaced Wall Street expectations.

The key number: 36%. That’s the rate at which advertising revenues grew. And it’s noticeably higher than ad sales growth in the second quarter, which had flagged at 28%. Excluding the impact of foreign currency changes, ad sales would have risen 43% in the third quarter.

Mobile revenues, a key metric for a company that until recently had zero mobile ad revenues and offered little of note to its mobile users, were 14% of the total $1.09 billion in ad sales.

The other key number: 9%. That’s how much shares are rising in after-hours trading. Shares of FB rose a little less than 1%, to $19.50, in trading today. That’s still only a little over half of the IPO price.

* Update: Make that 20%+. After sleeping on it, investors like the results even better the next morning.

Facebook still faces many challenges, such as the need to provide a better mobile experience for users and advertisers. And thanks to rising expenses, including stock compensation and related costs–up 64% from a year ago–it’s actually losing money on a GAAP basis. But if advertising is returning, whether it’s from more interest in its social and mobile ads, in the Facebook ad exchange that’s getting a lot of attention, or even in the new Gifts e-commerce service, that’s good news.

We’ll hear more from CEO Mark Zuckerberg shortly when Facebook conducts its analyst earnings call at 2 p.m. Pacific. I’ll blog the highlights here, but you can also listen to the livestream.

The call begins. Zuckerberg will talk about the vision and strategy of the company–make the world more connected, etc. Three pillars to the strategy:

1) Build the best mobile product. This is the most misunderstood pillar. Mobile allows us to reach way more people, people spend more time on mobile devices, and monetization should be even better than on the desktop.

2) Improve the Facebook platform.

3) Strong monetization engine. On mobile, ads will be more like TV–more integrated into the core product experience, rather than on the side. We’re starting to see better ad products for people and better results for advertisers.

I want to dispose of this notion that we can’t make money on mobile. Until recently, Facebook didn’t even try. …

Read the rest of Zuckerberg’s comments and his Q&A with analysts at The New Persuaders.

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Apple Leaves Gaping Price Hole Between iPad Mini And Rival Tablets

From my Forbes.com blog The New Persuaders:

Let’s just get it over with at the outset and concede that Apple’s just-introduced iPad mini will be a holiday hit, selling millions of units to people who know they can’t go wrong giving a gift of a new Apple product.

And at a starting price of $329, that gift-giving isn’t a budget buster for many people. Let’s face it: Apple has yet another great-selling product on its hands, this time in the palm of ours.

And yet, I wonder if Apple just punted a chance to grind its rivals in smaller tablets, chiefly Google’s Nexus 7 and Amazon.com’s Kindle Fire, into the dust. The Nexus 7 starts at $199, the Kindle Fire even lower at $159. But Google also may release a new Nexus 7 model next week at an Android event, potentially dropping the price of the current low-end model to just $99.

OK, so let’s get something else over with. By all early reports so far, the iPad mini is better than either of those two existing devices. It feels better, it looks better, it’s lighter, it’s thinner, it even still has a noticeably larger screen and especially viewing area than the Nexus 7 or Kindle Fire. Not least, it has Apple’s App Store, with apps that fit the tablet form factor rather than plastering smartphone apps onto a bigger screen.

So yeah, millions of people will love it.

But millions of other people will be hearing a lot about the Nexus 7 and the Kindle Fire, too, and Google and Amazon.com have a huge incentive to advertise the heck out of them. Honestly, if you don’t do a side-by-side comparison, which is tough to do, you may pick up a Nexus 7 or a Kindle Fire and say, “Hey, this looks pretty good. Why do I need to spend an extra $130, or even more?”

That’s why it’s surprising that Apple, whose CEO Tim Cook has talked about not leaving a significant price umbrella for Apple products, did just that with the iPad mini.

Read the complete post at The New Persuaders.

LIVE: Apple Launches iPad Mini Starting At $329

From my Forbes.com blog The New Persuaders:

We’re about to hear about Apple’s latest must-have product, so far dubbed the iPad Mini.

Whatever it’s called, it’s sure to shake up the already dynamic market for tablets. In particular, the rumored 7.85-inch iPad Mini could, depending on its price, instantly provide potentially crushing competition for Google’s Nexus 7 and Amazon.com’s Kindle Fire tablets.

You can watch the livestream of Apple’s event, which also is rumored to include a new MacBook Pro and a full-sized tablet updated with the latest Lightning connector and other features, on Apple’s site, at least on Safari-equipped PCs and iPhones and iPads. There are plenty of other people, including Forbes’ Connie Guglielmo, tracking every word and movement of Apple execs, so what follows here will be strictly the highlights from the livestream.

Just before the 10 a.m. Pacific start, panning cameras are following the crowd of journalists filing in to the California Theater in San Jose. … And we’re underway as CEO Tim Cook takes the stage, first to provide updates on the iPhone 5.

* There are now 200 million iOS devices out there.

* 300 billion iMessages have been sent, 28,000 per second.

* There are now 700,000 iOS apps, including 275,000 iPad apps.

* 35 billion apps have been downloaded from the App Store.

$ 6.5 billion has been paid out to Apple developers.

* Apple announces a new version of iBooks that features continuous scrolling and is better integrated with iCloud. You can also tap on a passage or quote and share it with friends on Facebook or Twitter.

Now on to the Mac. He says it has been outgrowing the PC market by about seven times in the past year, and has outgrown it for the past six years. It’s now the No. 1 desktop and No. 1 notebook in the U.S. “But we are not standing still. And we’ve got some really great stuff to show you  this morning.” Cue Phil Schiller, who notes that the 13-inch MacBook Pro is the best-selling Mac.

* And so, as expected, he shows the new 13-inch MacBook Pro. It’s three-quarters of an inch thick (or thin), 20% thinner, and weighs only 3.5 pounds, almost a pound lighter than the previous one. And four times the number of pixels in the Retina display–twice as many as a 52-inch HDTV. Flurry of new specs, chip, etc. “PowerNap” updates email, etc. while the computer is asleep.
Oh, the price: $1,699. It starts shipping today. MacBook Air starts at $999, Pro at $1,199, Pro with Retina $1,699.

Next, a new Mac Mini starting at $599. “You knew there would be something named Mini in this presentation, didn’t you?” he coyly asks.

And one more Mac thing: a new IMac. Yup, it’s ridiculously thin–only 5 millimeters, 80% thinner than the last one (though with a bulge in the middle of the back for, well, the computer. Almost looks like a stand for a real computer. “The most beautiful Mac we have ever made,” Schiller coos.

How did Apple make it that thin? “Isn’t it something how something new makes the previous thing instantly look old?” he notes, thus summing up neatly Apple’s business model. No optical drive is one reason it’s thinner. There are 27-inch and 21.5-inch models. They’re also up to 8 pounds lighter than the previous iMacs.

* Another new thing: The Apple Fusion Drive. It has 160 GB of flash storage with a 1-terabyte or 3-TB hard drive, fused into one drive. The point: You can use the flash storage for much faster access and the disk drive storage for stuff like movies you don’t need constantly.

Cook’s back with more news. Apple has sold its 100 millionth iPad, in just two and a half years.

* He also intros the new version of iBooks Author. Feels like a breather for the main event, and indeed, Cook goes back to the iPad.

* And so Schiller comes on to intro the fourth-generation iPad, which has a chip that’s two times faster, for speedier graphics. Also 10-hour battery, better camera, high-speed LTE cellular data connection with “greatly expanded” coverage. It starts at $499 for 16 GB of memory, $629 for the cellular model.

* And finally–the iPad mini! Yes, that’s what it’s called after all.

Why do you need a smaller one? Hold it in one hand–that’s one reason. And really everything else, he says.

* It’s 7.9 inches diagonally, 7.2 mm thick, 25% thinner than the regular iPad. Weighs only 0.68 pounds, 50% lighter. He even compares it to Google’s Nexus 7 (“and Android tablet”), saying that the iPad mini is aluminum and thinner, with a 35% larger display area–50% larger in viewing an actual web page. 

It’s interesting that Apple finds it necessary to compare the iPad mini to a specific rival, even if it’s unnamed. Clearly Apple has viewed it as a threat that it needs to blunt.

* So what’s inside? Apple A5 chip, FaceTime HD camera, 5 megapixel iSight camera, faster WiFi, Lightning connector, 10 hours of battery life.

* Yes, and the price? $329 for the low-end 16 MB WiFi version up to $529 for the 64 GB WiFi version. For the cellular models, $459 to $659.

Methinks that especially if Google comes out with a new $199 Nexus 7 next week and reprices the current low-end to $99–coupled with Amazon’s $159 low-end Kindle Fire–Apple may have left at least a small pricing window for those products. Or, maybe not so small. Will it be enough of a window given Apple’s customary premium (both in price and in product quality)? We’ll find out this holiday season.

Cook wraps up and that is indeed a wrap.

Marissa Speaks! CEO Mayer Lays Out Where Yahoo Needs To Go

Marissa Mayer

Yahoo CEO Marissa Mayer (Photo: Wikipedia)

From my Forbes.com blog The New Persuaders:

It’s a quarter that probably doesn’t matter much, but Yahoo eked out a small rise in profits on slightly higher sales in its third quarter.

It’s the first full quarter since CEO Marissa Mayer joined the company, and while investors are more concerned about the future, so far they like what they see in the last quarter. Shares are rising about 3% in after-hours trading following a decline of less than 1% today, to $15.77 a share.

Yahoo’s third-quarter revenues rose 2% to $1.09 billion, earning a 35-cent profit per share. Operating income came in at $150 million. Wall Street analysts were expecting net revenues of $1.08 billion, operating income of $180 million, and GAAP earnings per share of 26 cents. Including a onetime gain from the sale of shares of China’s Alibaba, Yahoo’s EPS was $2.64.

Those figures are minus the costs of acquiring traffic from website partners. Gross revenues fell 1% to $1.202 billion, a touch below analysts’ $1.206 billion estimate.

In particular, display ad revenue, Yahoo’s mainstay business, came in flat from a year ago at $452 million, but search ad revenues via its multi-year deal with Microsoft were better than expected, up 11% to $414 million.

And we’re underway on the analyst call with Mayer:

Mayer says she’s thrilled to be hear, naturally. She says she has been having a lot of fun. Why did I come to Yahoo? This job is tailor-made for me. Search, mobile, ads, home page, etc.–all things I built my career on.

She’ll talk about priorities and vision–great! First she addresses the people problem–that is, all the ones who have been leaving in droves for years. She says she has instituted new goals, metrics, etc. for people. True cultural change can’t be bought. The vast majority of what we’ve done hasn’t cost much, she says. …

Read the complete post at The New Persuaders.

Google CEO Larry Page Speaks! Big Reveal: $8 Billion In Mobile Revenues

From my Forbes.com blog The New Persuaders:

Investors have had a chance to digest Google’s third-quarter earnings longer than they expected, but they still have indigestion over the disappointing results. Can CEO Larry Page (yes, he will speak!) and his executives provide a Maalox moment on their earnings analyst call?

We’ll find out shortly, starting at 1:30 p.m. Pacific. You can watch it here as well. Keep refreshing for updates through about 2:30 p.m.

Update: It looks like Motorola was the chief culprit. Yes, less lucrative mobile ads seem to be a factor, but not one Google seems overly concerned about–it’s at least the third time I’ve heard executives say that mobile eventually could be better than desktop ads. Indeed, I was struck by the mention that one reason for the rise in costs that led to lower profits was sales of the probably near-zero-margin Nexus 7 tablet–which was striking for a single, non-advertising product. For better or worse, Google’s betting big on mobile, from ads to devices, and expects whatever shakes out to be positive. Investors clearly aren’t so sure.

And we’re underway. Page still has a strange froggy voice–seriously, really strange like he inhaled too much helium, so I can understand why he hasn’t spoken much in public. Anyway, he’s keeping his remarks short. You can read the prepared remarks on Google+. We had a strong quarter, he says, and I’m really happy with our business. Revenue was up 45% from a year ago.

Today, we leave in a world of abundance–abundant information and abundant computing. Many of us feel naked without our smartphone. Google is super-well-placed to take advantage of these opportunities. We’re seeing tremendous innovation in mobile advertising. Eventually, he adds, it will work even better than desktop ads.

We took a big bet on Android back in 2005. Most people thought we were nuts. Today, there are over half a billion Android devices, with 1.3 million more being activated every day. He suggests everyone go out and buy a Nexus 7 tablet.

Our run rate a year ago for mobile advertising was $2.5 billion. Along with apps and Google Play, it’s now over $8 billion. That’s quite a business, he says mildly–though based on the new way it’s calculated (see below), it may not be as amazing as it seems.

We had spread ourselves too thin. We sunsetted 17 more products last month. It’s more important than ever we converge our services.

We want to make advertising super-simple for our customers. Today, separate campaigns for desktop and mobile makes it more difficult and mobile opportunities often get missed. Advertisers should be free to think about their audience while we do the hard work optimizing across channels.

That’s the gist of his first widely public remarks (he spoke the other day at Google’s Zeitgeist event to the media elite).

Now CFO Patrick Pichette goes into some detail….

Read the complete post at The New Persuaders.

Advertising Experts: Ignore Google’s Earnings, It’s Doing Just Fine

From my Forbes.com blog The New Persuaders:

After reporting disappointing third-quarter earnings, and giving investors a few extra hours to sell their shares to boot, Google saw its shares hammered before trading was halted. But while Motorola Mobility, which Google acquired for $12.5 billion in May, clearly is a big drag on the company, ad folks say its core business is just fine.

Bryan Wiener, CEO of the digital marketing agency 360i, a specialist in search advertising in particular, says Google’s core business still appears healthy. The only hitch, he says, is that mobile ad prices per click are still 30% to 50% lower than desktop clicks, but he says that gap is narrowing as mobile cost-per-click continues to rise.

The main issue is not so much that advertisers view mobile ads as less effective. There are actually two other issues.

First, there’s still less competition for mobile ad space. And since Google ads are sold by auction, less competition means lower prices.

Why is competition less? That brings up the second issue: It’s not yet clear precisely what impact mobile ads have. They don’t work exactly the same as desktop ads, where people customarily conduct a search, click on an ad, and then a certain percentage buy the product. That’s easy to track.

On their mobile phones, however, people are more often searching for a store, rather than looking to complete a transaction online. They may well end up buying in that store–some companies are starting to provide ways to track that connection, and marketers anecdotally know it’s happening–but separate databases for online and store activity still means it’s tough to close the measurement loop.

Wiener thinks that will get solved eventually. Even in the short term, mobile search ads that are still Google’s bread and butter are better positioned to show their value than mobile display ads, which may appear in hard-to-track apps and still aren’t standardized enough for marketers to spend big bucks to reach broad scale. That means Google for now is likely to fare better in consumers’ rush to mobile than, say, Facebook and Yahoo. “Everybody is still bullish on mobile search,” says Wiener. “But it’s still very early in the game.”

Looking ahead to the fourth quarter and beyond, says Wiener, “our clients are cautiously optimistic” about search ads in particular despite the uncertainty of the economy and the election. …

Read the complete post at The New Persuaders.

3 Reasons Google Missed Q3 Earnings Estimates

From my Forbes.com blog The New Persuaders:

Google’s shares plunged this morning by 9% after the search giant’s third-quarter earnings came in considerably lower than expected. The results were accidentally released hours earlier than expected, leading to a halt in the shares’ trading for a time.

Google earned a $9.03 per share profit before certain expenses, far below the $10.63 Wall Street consensus estimate, and down 20% from a year ago. GAAP profit was $6.53. Net revenues after paying partners for traffic were $11.53 billion, up 19% from a year ago. That also missed the Street’s estimate of $11.9 billion. Paid clicks, a key indicator, rose 33% from a year ago, and cost per click, another key measure but one whose meaning is murky, fell 15%.

So what happened? Here’s a quick assessment, which will be supplemented in a new post following the 1:30 p.m. Pacific earnings call:

* Costs jumped. They were up 71%, to $11.4 billion. It appears much of that increase came from Motorola Mobility, which Google acquired for $12.5 billion in May. After all, the acquisition added more than 20,000 employees. As Citi analyst Mark Mahaney said in a note to investors: “Bottom line divergence partly due to Amortization expenses, which came in at $317MM vs. our $197MM estimate. That contributed perhaps $0.40 of the EPS shortfall.” Update after the earnings call: But not just that. CFO Patrick Pichette specifically mentioned costs of selling the likely near-zero-margin Nexus 7 tablet Google released during the quarter–a single product line, so the company’s is clearly pushing it hard.

* Motorola losses were huge. The unit posted a $527 million loss on a GAAP operating basis. Mahaney again:  “Another major delta was Motorola, which generated $151MM Op Loss vs. our $28MM estimate.”

* Ad revenue didn’t set records. It was up 16% from a year ago. Although lower cost per click isn’t always an indicator of a problem, in this case, the fourth consecutive decline has investors wondering anew if it’s due to the lower prices mobile ads get or even competition from the likes of Facebook. …

Read the complete post at The New Persuaders.

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