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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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.

Twitter Offers Advertisers In-Stream Surveys To Measure Brand Impact

From my Forbes.com blog The New Persuaders:

Companies that make their money from online ads know that brand marketers currently advertising mostly on television are where the really big bucks are. Google, Facebook, Twitter, and other major online ad operators are all scrambling to prove to these big spenders that their ads can move the needle on classic metrics such as brand recognition and intent to purchase.

Today, Twitter offered up another carrot to brand advertisers: surveys that they can run inside a Twitter user’s timeline. A tweet will ask if they want to do the survey, then if they click on it, it will appear within the timeline so users aren’t taken away from Twitter.

The surveys will allow marketers to ask a few questions that will help them determine the impact of Twitter ads on respondents’ awareness of a company or product brand and whether they’re likely to buy the product. Twitter is working with Nielsen to offer analysis of the results, allowing for more direct comparison to campaigns on other sites as well as on TV. The feature will be offered free for now to a select group of large Twitter advertisers, with plans to roll it out more widely early next year.

Surveys may sound rather pedestrian as a feature, but it’s critical for brands looking to extend campaigns across multiple media. Twitter says the response rate on early tests is comparable to the 1% to 3% that Twitter’s signature Promoted Tweets ads get. That’s also quite good compared with the fractional response that traditional banner ads get. And so far, at least, Twitter users seem comfortable with brands on the service.

More interesting to consider, there’s no reason this kind of feature need be limited to surveys. With the capability to offer a more interactive experience right inside the current Twitter service, Twitter eventually could offer brands more creative tools beyond surveys, such as rich media, video, commercial message sharing with followers or others on Twitter, or even the ability to buy products without leaving Twitter.

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.

Google Shuts Off TV Ads Business

From my Forbes.com blog The New Persuaders:

After five years of trying to sell ads on television using the automated buying system that works so well for its signature search ads, Google has finally given up. In a blog post this afternoon from Shishir Mehrotra, VP of YouTube and video, the ad giant said it will shunt the group’s staff to other projects:

Video is increasingly going digital and users are now watching across numerous devices. So we’ve made the hard decision to close our TV Ads product over the next few months and move the team to other areas at Google. We’ll be doubling down on video solutions for our clients (like YouTube, AdWords for Video, and ad serving tools for web video publishers). We also see opportunities to help users access web content on their TV screens, through products like Google TV.

The shutdown is clearly a disappointment for Google, yet another sign that its math-driven advertising systems don’t readily translate to traditional advertising. Back in 2009, the company shut down radio and print ad efforts for lack of interest.

Mehrotra’s not being entirely disingenuous when he says that Google’s efforts are better spent on online video advertising. After all, more and more TVs get connected to the Internet and more and more people watch TV shows on their laptops, smartphones, and tablets. With its Google TV project and its fast-growing YouTube video service, Google remains in a prime position to vacuum up ad revenues as big advertisers start to follow their audience onto the Web.

Indeed, YouTube especially has shown considerable traction in attracting new ad spending–$3.6 billion this year, by the reckoning of Citigroup analyst Mark Mahaney. As I wrote in a recent story, YouTube is where Google is placing its television-scale bets:

Now Mehrotra’s goal is to try to grab a big chunk of the $60 billion U.S. television business. But to do that, and fend off TV-content-oriented online rivals such as Hulu, YouTube has to become a bit more like conventional TV. To that end, it organized itself last year into TV-like channels, investing $100 million in cable-quality launches from Ashton Kutcher, Madonna, the Wall Street Journal, and dozens of others. More and more TV advertisers are being won over, says David Cohen, chief media officer at the media buying agency Universal McCann. “They’re getting marketers to think about YouTube as a viable outlet,” he says. 

Mehrotra, who last year became ­YouTube’s vice president of product, envisions millions of online channels disrupting TV, just as cable’s 400 channels disrupted the four broadcast networks. “We want to be the host of that next generation of channels,” he says.

In other words, Google’s strategy is to attack the TV ad business from where it’s strong instead of from where it’s not.

Why Do Programmers Hate Internet Advertising So Much?

Facebook ad question (Photo credit: renaissancechambara)

From my Forbes.com blog The New Persuaders:

Another week, another pontificating programmer slamming online advertising. What is it with these guys?

The latest example is a steaming heap of linkbait from software developer and entrepreneur Patrick Dobson entitled Facebook Should Fire Sheryl Sandberg. That would be the chief operating officer of Facebook, whose purported crime is that she steered Facebook toward being an ad-supported company.

In Dobson’s telling, while Facebook cofounder and CEO Mark Zuckerberg was off at an ashram in India, onetime Google ad exec Sandberg mandated that Facebook would henceforth be an advertising company. Proof of her folly? Facebook’s now worth half of what it was at its IPO three months ago as it “continues to flounder in advertising hell.”

This, despite the fact that Facebook will gross about $5 billion in ad revenues this year, despite the fact that its current market cap is still more than $40 billion less than eight years after the company’s founding in a Harvard dorm.

Thousands of Web developers would love to flounder this badly.

Dobson’s preferred alternative is that Facebook should gradually phase out advertising in favor of–and I have to get technical here, because the bigger picture he provides is fuzzy–selling access to its application programming interface. That way, developers can build businesses like Zynga did on top of the social network in the way personal computer software developers built applications atop Microsoft’s Windows. From his post:

… There is massive value in the social graph and the ability to build applications on top of it. I believe the value is greater than all of the advertising revenue generated on the web to date. … What is the best way to monetize the social graph? To sell access to the social graph! … Developers can then figure out if advertising, or micro transactions, or payed access is the best way to monetize the social graph.

I’m not really sure what “selling access to the social graph” would be, though it sounds like the result could make Facebook’s many privacy gaffes to date look tame.

But the bigger problem is the persistent implication by tech folks like Dobson that advertising is beneath them, and beneath any intelligent human being. Now, I’m no huge fan of most advertising, and all too often it is indeed lame. But there’s no doubt it can be useful at the right place and time, and even when it misses the mark, advertising is a small, remarkably frictionless price to pay for a whole lot of free Web services.

The notion that advertising is evil, to use a favorite term of Google critics, or at least useless is a longstanding meme in Silicon Valley. It goes at least as far back as Google’s founding, before it became–right–the biggest online ad company on the planet. Cofounders Larry Page and Sergey Brin famously wrote in their Stanford doctoral thesis describing Google that advertising could pollute search results.

Why this antipathy to advertising? A lot of tech folks seem to believe they’re immune to the influence of advertising. More than that, they assume that no one else is much influenced by it either (despite ample evidence over many decades that ads do influence people’s attitudes and behavior). Therefore, the reasoning goes, ads are nothing more than an annoyance, an inefficient allocation of capital. Dobson accuses Sandberg of a “rampant lack of business creativity” that has “no place in centers of innovation,” later saying she should start an ad agency in Miami. …

Read the complete post at The New Persuaders.

Twitter Launches Ads Targeted To Interests–Starting At A Penny

From my Forbes.com blog The New Persuaders:

Until now, advertisers could hit Twitter users with ads only if they followed the company or users Twitter deemed to be similar to those followers. That limited the potential reach especially for large brands looking to advertise to many millions of people.

Today, the company announced that marketers can now target the service’s 140 million users with ads, called Promoted Tweets and Promoted Accounts, based on their interests, inferred from their retweets and whom they follow, and other undisclosed qualities it uses to create its “real-time interest graph.” From the announcement, here’s how it works:

There are two flavors of interest targeting. For broader reach, you can target more than 350 interest categories, ranging from Education to Home and Garden to Investing to Soccer, as shown in the screenshot below. As an example, if you were promoting a new animated film about dogs, you could select Animation (under Movies and Television), Cartoons (under Hobbies and Interests), and Dogs (under Pets).

The two-level interest hierarchy is composed of more than 350 categories.

If you want to target more precise sets of users, you can create custom segments by specifying certain @​usernames that are relevant to the product, event or initiative you are looking to promote. Custom segments let you reach users with similar interests to that @​username’s followers; they do not let you specifically target the followers of that @​username. If you’re promoting your indie band’s next tour, you can create a custom audience by adding @​usernames of related bands, thus targeting users with the same taste in music. This new feature will help you reach beyond your followers and users with similar interests, and target the most relevant audience for your campaign.

So, how well does this work? Twitter says it’s seeing not only greater reach, no surprise, but also higher engagement thanks to messages reaching people more likely to be interested. It provides no specifics on these early tests, however.

Twitter also dropped the minimum bid for its auction-based ad system from 50 cents to a penny. That doesn’t mean a flood of cheap ads for getting rid of belly fat are coming. Indeed, it could open up its ads to a broader set of ad buyers, potentially creating more competition and higher prices.

As AllThingsD’s Peter Kafka notes, Twitter isn’t allow advertisers to target ads based on your tweets themselves, which probably makes them less effective in terms of purchase intent than Google’s search ads. Still, the ability to target people by their interests could be a big step forward for the company as it tries to turn its audience into dollars.

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