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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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.

Mobile Ad Spending Doubles in 2012’s First Half

From my Forbes.com blog The New Persuaders:

Mobile ads drove a 14% rise in online advertising revenues, to $17 billion, in the first half of 2012, according to a report out this morning from the Interactive Advertising Bureau and PricewaterhouseCoopers.

According to the IAB’s latest half-year report (full pdf here), mobile ad revenue jumped 95%, to $1.2 billion, or or 7% of total online ad revenues. That’s up from 4% a year ago. The reason is fairly obvious, and something every company from Facebook to Google is struggling with: People are increasingly accessing online service through smartphones and tablets, thanks to the popularity of the iPhone, the iPad, and Android devices, and advertisers are following them there.

The 14% rise pales next to a 23% rise a year ago, though the IAB attributes last year’s jump to a recovery from the recession. Online ad spending continues to far outpace overall advertising spending, which rose less than 1%, according to both Nielsen and Kantar Media. Television remains the one relatively bright spot in traditional media, though its growth also remains far behind digital. Cable saw a 4% increase, to $10.9 billion, and broadcast rose 3.3%, to $11.1 billion.

Performance-based ads, those seeking to elicit an immediate purchase or other action, remain dominant, and even gained ground over more brand-oriented ads. Chief among these ads are search ads, which despite their 48% share of overall online ad revenues continued to gain as a category in the first half, rising 19% to reach $8.1 billion. That means search giant Google, which reports its third-quarter earnings a week from today, still reigns supreme in online ads.

Display ads rose only 4%, to $5.6 billion, reducing its share of overall online ads from 36% to 33%. Although the IAB didn’t mention it, no doubt part of the relatively slow growth is due to the rise of more efficient (that is, lower-priced) banner ads placed via real-time bidding through ad exchanges.

“Brand dollars are moving online, but at a slightly slower pace than the last two half-year reports,” Sherrill Mane, the IAB’s senior VP research analytics and measurement, said in a conference call this morning. That’s a problem, indeed perhaps evidence of a problem, for companies such as Facebook that are depending on brand marketers moving television and magazine ads online. …

Read the complete post at The New Persuaders.

Google: Here’s How Well Mobile Ads Can Work

From my Forbes.com blog The New Persuaders:

The big rap on mobile advertising from marketers is that all they get is a tiny piece of a tiny screen to tell their stories–nothing like TV spots, print ads, or even Web banner ads. That’s one reason spending on mobile ads remains so small that it’s worrying investors in every online company from Google to Facebook to the New York Times, all of whose audiences are using their services more and more via mobile phones and tablets.

The other reason the year of the mobile ad always seems to get pushed out to next year? Marketers aren’t sure how to measure their impact. Measure only clicks on the buy button, without tracking how mobile ads lead customers to physical stores as they surely do, and it doesn’t look like many mobile ads pencil out as well as Web ads. It’s no wonder that a new survey out this morning by the Chief Marketing Officer Council shows only 14% of CMOs are satisfied with their mobile efforts, and 43% definitely aren’t.

Google, for one, is pushing hard to change this situation, especially since both these concerns have emerged front and center among marketers in the six months since Google launched its Mobile Playbook intended to help brands do more effective mobile marketing. With a new update to its own mobile marketing vehicle announced this morning, Google is aiming to answer those concerns using a raft of real-world examples.

First, several examples of mobile campaigns illustrate that the main problem isn’t lack of screen space, but lack of imagination by marketers. “Mobile is a great canvas for brand-building,” says Jason Spero, Google’s head of global mobile sales and strategy. “It’s going to produce some of the greatest campaigns in digital. But it’s shocking how far behind the [consumer] consensus the broad base of companies are.”

But some are managing to use the distinctive features of mobile devices to vault ahead of that laggard pack. Google points to several award-winning mobile campaigns from this year’s Cannes Lions Festival that showcases creative advertising. They look nothing like standard banner ads and, for better or worse, nothing like the “native” ads that are nearly hidden inside the news feeds of Facebook and Twitter.

That General Motors ad at the top, for instance, was a Game Time app that blatantly hijacked people’s attention from the game itself and, as the video says, “distracted them from watching our competitors’ ads.” Other mobile ads by Korean retailer eMart, Brazilian financial services firm Bradesco, Toyota, and others used smartphones’ cameras, touchscreens, GPS location data, and accelerometers to provide experiences not possible on the desktop, from back-seat driving games to QR codes that provide deals only at noon local time to attract lunchtime shoppers.

Second, Google’s calling out examples of how to measure the impact of mobile campaigns beyond the click, which may have even less meaning on mobile phones than on the Web. Adidas, for instance, with its agency partner iProspect, determined that including the real value of a click on a store locator button, which it had identified from store data, proved that mobile ads were paying off in in-store sales. “Mobile is driving behavior in the real world,” says Spero, and cases such as Adidas’ are starting to prove it.

Yahoo Pitches New Ad Network To Battle Google’s AdSense

From my Forbes.com blog The New Persuaders:

Search ad giant Google grossed about $10 billion last year from AdSense, the program that syndicates text and display ads to thousands of websites from the New York Times to the tiniest niche publishers. So it’s no wonder that more than two years after shutting down its own AdSense competitor, a struggling Yahoo is taking another crack at it.

Today, it’s announcing a partnership with Media.net, an under-the-radar provider of contextual advertising like AdSense’s that runs ads on websites matched to the site audience’s interests. The program, called Yahoo! Bing Network Contextual Ads, will allow websites to run text ads (like those pictured on the top right) from the Yahoo! Bing Network, the recently renamed search alliance between Yahoo and Microsoft.

The awkwardly named program has the potential to be a badly needed boost in revenues for Yahoo, which have been stagnant for a long time. Despite Yahoo’s weakened state, it still has a valuable brand, worldwide audience of a half a billion, and search ad deal with Microsoft. Those factors will lend the venture instant credibility in an online ad industry that’s an increasingly crowded, competitive morass of ad networks (perhaps including a likely new one from Facebook), ad exchanges, an alphabet soup of ad tech providers, and, of course, Google’s AdSense.

Talks have been underway between Yahoo and Media.net since 2010, even before the Yahoo Publishing Network was shut down, according to Divyank Turakhia, founder and CEO of Media.net. And Turakhia’s other related ad companies had worked with Yahoo for a couple of years before that. So don’t get the idea that this is a big new idea from Marissa Mayer, Yahoo’s relatively new CEO. …

Read the rest of the post at The New Persuaders.

Google To Steal Facebook’s Display Ad Lead in 2012–A Year Early

From my Forbes.com blog The New Persuaders:

After seeing Facebook vault into the lead in U.S. display-ad revenues last year, Google will take the top spot this year, according to a new forecast from market researcher eMarketer.

The search giant’s display revenues in 2012 will jump almost 39%, to $2.31 billion, while Facebook’s will rise 24% to $1.73 billion and Yahoo’s revenues barely budge to hit $1.39 billion. Overall, display ad revenues will rise almost 22% this year, to about $15 billion, thanks to Google’s and Facebook’s growth, the continuing explosion in ad inventory thanks in part to mobile advertising, and more spending on video ads, especially on YouTube.

But that number is down a bit from eMarketer’s previous forecast because of lower display ad prices on ad networks and continuing wariness by big brands to up their display spend significantly. Google and Facebook combined will account for nearly 30% of display ad revenues this year, rising to 37% in 2014.

What’s more, according to eMarketer, Google will lengthen its lead in the next couple of years in these banner, video, and social ads that are the mainstay of most commercial websites, reaching $4.4 billion in 2014 to Facebook’s $3.2 billion and a moribund Yahoo’s $1.5 billion. Microsoft and AOL also will continue to see relatively flat revenues.

What’s going on here? For one, Google’s display-ad engine has begun to rev, thanks to its YouTube video site, its mobile ads, and its DoubleClick ad-buying and ad exchange business. At the same time, Facebook has seen its growth slow recently, raising questions in the minds of investors about the effectiveness of its social ads and its relative lack of mobile ads. Earlier this year, eMarketer had forecast that Google wouldn’t capture the display lead until next year. …

Read the complete post at The New Persuaders.

Beyond Search: Google Tunes Up Display Ad Machine

Image representing DoubleClick as depicted in ...

Image via CrunchBase

From my Forbes.com blog The New Persuaders:

Just a few months ago, Google sketched out a plan to bring together a wide array of its display ad buying technologies into a more coherent, easier-to-use offering. On Wednesday, it’s announcing that it has put some meat on the bones of what it now calls the DoubleClick Digital Marketing platform.

This is a little inside-ad-tech-baseball, so bear with me. But essentially, Google is gradually refining the pieces of what it hopes will be something of an operating system for online advertising, not just the search ads it dominates but the picture- and video-based ads that support most websites:

* It’s close to integrating key pieces of ad buying and creation systems that it built or acquired in recent years. For one, the ad buying system DoubleClick Bid Manager–the “demand-side platform” formerly known as Invite Media that Google acquired two years ago–will move out of beta test mode and become available to all customers next month. Google says improvements in the underlying technology infrastructure have reduced the time it takes to connect with various ad exchanges, allowing beta customers to access 16% more ad inventory on the thousands of websites that use DoubleClick. …

Read the complete post at The New Persuaders.

Cease Fire! Google Debuts YouTube App For Apple’s iPhone–With Ads

From my Forbes.com blog The New Persuaders:

So much for that thermonuclear war.

When Apple removed its YouTube app from its App Store last month, a lot of folks assumed it was one more battleground in an escalating war between it and Google. That seemed like the wrong narrative at the time, and today, it appears there wasn’t much to the supposed skirmish after all. Google has just introduced its own YouTube app for Apple’s iOS devices, specifically the iPhone and the iPod Touch. It’s available in the App Store this morning.

That means that the YouTube app, the previous version of which was created by Apple, no longer will be a default app on the devices, so people will have to manually install it. But given how popular YouTube is, millions of people no doubt will. And the upside is that the app is faster, has features such as an easier guide to channels, and allows you to share videos more easily on Facebook, Google+, and elsewhere.

Most of all, you can now watch tens of thousands more videos, in particular music videos like Taylor Swift’s above. That’s because the new app, unlike the old one, can run ads. The inability to run ads on the old one was a reason many content providers didn’t let them be viewed on the app.

More to the point for Google, this means it can now earn some serious coin from mobile visitors. That’s crucial as mobile devices become the default way people are reaching content on the Web. Google says a quarter of YouTube views, more than a billion a day, are from mobile devices.

There’s no iPad app yet, which seems like a serious shortcoming. Google says it will have one in “coming months,” but obviously sooner would be better, especially with the iPad Mini due out by next month.

Of course, Google and Apple have plenty else to fight about, from patents to mobile operating systems. So don’t expect to see Larry and Tim hugging onstage or anything. But they won’t be fighting over this particular issue anymore.

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