As Q2 Earnings Approaches, the Street Stays Bullish on Facebook's Mobile Prospects

Facebook's S-1 filing in early 2012 came with a rude awakening we're all quite familiar with by now: The world is going mobile, and Facebook's ad business needed to adapt fast in order to keep up with it.

Now, as Facebook prepares to report its second-quarter earnings this afternoon, something has shifted: Wall Street is actually optimistic about Facebook's mobile monetization prospects.

The Street's consensus calls for earnings per share of 14 cents on revenue of $1.62 billion, an estimate up from the EPS of 12 cents on revenue of $1.18 billion reported during Q2 of last year.

"While quarterly results at FB will likely remain volatile, we remain bullish on the direction and growth trajectory of the company," Sterne Agee analyst Arvind Bhatia wrote in a research note this week.

The biggest boon for some? The trending surge in Facebook's mobile revenue figures seen in recent quarters.

Mobile revenue accounted for nearly 30 percent of Facebook's ad business in the first quarter of this year, which was already a jump up from 23 percent in the fourth quarter of 2012. That's expected by some analysts to grow, albeit slightly, to a daily run rate of nearly $5 million on mobile ads alone.

Facebook has made it clear that at least one of its more recent ad products - mobile app installation ads - has been quite successful in driving growth, and J.P. Morgan's Doug Anmuth expects that to continue.

"We remain bullish as we believe ad dollars are increasingly shifting to online, mobile, and social and we expect Facebook to capture a growing portion of ad budgets going forward," Anmuth wrote in a research note.

The big unknowns are the usuals that we'll be looking for. Will the company break out any metrics beyond its usual stats on daily and monthly active users? That may be something to watch for, given Facebook's increasing competition for mindshare from other mobile-based sites like Snapchat, WhatsApp and International competitors like Line and KakaoTalk.

Perhaps Facebook will detail some engagement-based stats that could rebut the chatter that the social giant is losing its cool with younger audiences.

Another wild card: The oft-speculated eventual appearance of auto-play video ads in the News Feed. Bhatia and Anmuth both expect the ads to debut in the latter half of the year, a potential multibillion-dollar revenue-driving opportunity for the company. "We see online video advertising as a key incremental growth driver for FB in 2014," Bhatia wrote.

And lastly, the payments question still remains. Driven largely by social games on the platform, Facebook's payments business has changed much over the past two years, again a result of the sweeping shift to mobile. Zynga, which once reigned supreme as Facebook's largest gaming partner, has taken a drastic hit as users have moved away from playing games on the desktop to more casual gaming on the phone and tablet.

As a result, Facebook's payments revenue cut has flattened. The past year has seen Facebook try to distance itself from being too connected to Zynga, giving way to the rise of other smaller, more mobile-focused gaming outfits like King and, to a lesser extent, Wooga.

Analysts expect flat sequential revenue in the payments business, though a slight uptick in year-over-year growth.

I'll be covering the print as it hits the wire at 1 pm PT, with a liveblog of the earnings call from my colleague Peter Kafka to follow.

Facebook Beats as Mobile Revenue Jumps to 41 Percent of Ads Business

Facebook's numbers are in, and they look good across the board - especially in mobile.

The social giant posted its second-quarter earnings on Wednesday afternoon, reporting earnings per share of 13 cents on revenue of $1.81 billion. That beats analysts' expectations of an EPS of 14 cents on revenue of $1.62 billion.

But the biggest point of interest here is in the breakdown of Facebook's revenue numbers. Mobile revenue, the most closely watched part of Facebook's business, accounts for 41 percent of Facebook's total revenue. That's a leap from accounting for nearly 30 percent just last quarter.

"One of the things this quarter says to us is that News Feed ads work," Facebook CFO David Ebersman told AllThingsD in an interview. "They're really creating compelling returns for our advertisers."

Facebook has faced intense criticism from investors over the past year and a half, as Wall Street voiced concerns that the company couldn't adeptly handle the massive shift from desktop to mobile use. Most of Facebook's advertising products were optimized for desktop users for as long as the company has been around, and only over the past year has it tried to shift toward a "mobile first" environment.

The company, however, has made some inroads with new mobile advertising products - in particular with its mobile app installation ads aimed at application developers.

"They're growing very rapidly," Ebersman said of the ad product. "And we're enthusiastic because the app ecosystem is such a fast-growing and dynamic area - developers need effective ways to help people discover what they have built."

As far as overall user growth, Facebook is still increasing in both new users and engagement. Facebook's daily active users increased to 699 million, a jump of 27 percent year over year. And monthly active users swelled to 1.15 billion, a 21 percent increase year on year.

But again, the biggest number of note here is the mobile MAU number. Monthly active users on mobile jumped to 819 million, an increase of 51 percent year over year. Talk about a shift from desktop to mobile.

"We've made good progress growing our community, deepening engagement and delivering strong financial results, especially on mobile," CEO Mark Zuckerberg said in a canned statement. "The work we've done to make mobile the best Facebook experience is showing good results and provides us with a solid foundation for the future."

Facebook's stock is up nearly 20 percent in after hours trading, hovering around $31 per share.

Tune in to my colleague Peter Kafka's live coverage of the earnings call here.

Facebook Says It Has Figured Out Mobile. Wall Street Says It Believes Facebook.

You can't say Wall Street has agreed to forgive and forget its past issues with Facebook. But it's getting closer: After a very strong Q2 earnings report, investors pushed shares up 17 percent in aftermarket trading.

Facebook is now trading at about $31 a share, nearly as high as it has been all year. That still doesn't bring it back to the $38 price from its 2012 IPO, but it's definitely progress.

Big picture: Facebook seems to have answered, at least for now, questions about its ability to handle the shift to mobile: Its users are headed there, and it is showing them ads there, and both usage and ad dollars are up.

Facebook also took pains to explain that it is still totally cool with the kids. Which sounds a bit strained when they say it, but until people can show statistics proving otherwise, investors may cut them some slack.

And Facebook COO Sheryl Sandberg also made a point of mentioning all the usage Facebook sees during prime time TV viewing hours. Translation: Hey Twitter - we can pitch social TV to advertisers, too.

Earlier:
It's more fun to come on an earnings call when Wall Street is psyched about your numbers, right?

At least that's the theory. Let's see how Mark Zuckerberg and Sheryl Sandberg do following a strong quarter, which has investors bidding up their stock more than 14 percent in after-hours trading.

Let's listen in. Actually, I'll listen: You guys watch me type a liveblog.

5:04 pm: Greetings. Listening to Mark Zuckerberg, reading with enthusiasm.

Points out that results today come from big investments a few years ago. Promises patience for more long-term payouts.

Did you know there are 5 billion people who aren't on Facebook? Facebook is coming for you, people who are very likely not reading this liveblog!

Facebook advertising isn't just making money for Facebook, it is somehow improving the world's overall economy.

Ratio of daily active users to monthly active users is increasing - that is, as more people come on to Facebook, more people spend more time on Facebook.

By the way, don't believe those "Facebook engagement decreasing" reports: Market share steady or increasing.

Now, about those teenagers you keep hearing about: They're still totally using Facebook! Here Zuck uses a phrase that I don't feel totally comfortable retyping. So.

Instagram: Still totally growing!

Instagram video growing fast. Facebook Graph Search and Facebook Home, not so much, but that's totally cool, says Zuck. Think long-term!

5:10 pm: Zuck still pumped, and now he's talking about ads, which is not a thing he would have been pumped to talk about a few years ago. Maybe even one year ago.

Shoutouts to all the Facebookers! "You're all helping to connect the world and push it forward."

5:11 pm: Now, Sheryl Sandberg, who is less forcefully excited. But reciting impressive numbers regardless.

Also talking up app ads, local ads.

And hey, don't look now but FB is up 20 percent since this afternoon's numbers.

Now taking time to talk up all the TV-watching, and TV-talking, that happens on Facebook. In other words: In case you didn't catch this earlier, Twitter, we are totally coming after the social TV business you've been building. Heads up!

(Apologies, missed a couple minutes here while multitasking.)

5:17 pm: And now CFO David Ebersman.

Usage numbers are great. 699 million average daily users in June. Total time spent: 20 billion minutes each day.

(More apologies. Was busy asking Facebook beat reporter Mike Isaac why he was Tweeting about the call while I covered the live blog for him.)

(Bunch of statistics you do not want to read about in a liveblog. If you are looking for that stuff, by the way, it's all over here.)

We're still going to pour a lot of money into capex, Ebersman says. So get used to it. (Google had to explain this to investors for a while, too.)

News Feed ads will be main ad growth engine for rest of the year. But note that they started up a year ago, which means Q3 and Q4 comps will be a little tougher. Okay, analysts? (Guide that number down a bit!)

Also, expenses are going to grow at a faster clip then revenue this year. (Got that, analysts?)

5:25 pm: And now, ladies and gents, here's Q&A, with Mike Isaac!

3:25 pm: Mike Isaac here, taking over for Peter on the questions from analysts.

3:26 pm: A question from Doug Anmuth on ads.

Basically, is your big ad growth a lot more ads in the feed, or better ad products?

3:26 pm: Sandberg: Both! All!

Also, we've got a big increase in demand from marketers.

3:27 pm: Mobile app install ads question - Sandberg says they're small but growing.

"It's basically an entirely new market ... we're growing quickly and helping to grow the market."

I asked about mobile app install ads, too, in a chat with Ebersman earlier. They're sorta mum on its success specifically, but I hear that developers like them.

3:28 pm: Oh, if you've noticed, my time stamp is wonky. That's because I'm sitting in an airport in Aspen, Colorado, liveblogging from the terminal as my flight has been delayed. Ho hum.

3:29 pm: A question on monetizing Instagram! Please tell us you have something in mind for that pretty photo-sharing app.

3:29 pm: Zuckerberg on Instagram: Non-answer.

Yes, we want to build a business. "Probably through advertising." But right now they're focused on just letting the thing grow like crazy.

True. It's up above 130 MAUs. Pretty crazy.

3:30 pm: Sandberg on growth in ad spend: Yes! Soon!

"I'm a believer that over time, this is where people are spending their time, and any marketer who wants to reach people is going to spend here."

Fingers crossed, Sheryl.

3:31 pm: Growth is still strong across regions outside of the U.S., Sandberg said.

Particular focus on Asia, seeing increasing adoption in APAC and the rest of the world.

3:33 pm: Sandberg says Facebook exchange is actually a small part of the company's business. They're expanding their on-the-ground sales force, too.

3:34 pm: Ebersman chimes in on how much the company is spending.

No end in sight to the amount Facebook is spending to invest in the business.

But he cites being "disciplined" and "focused" in their spending.

In other words, it's not all kegs and sushi bars for the campus. Lots of smart spending, he says.

3:36 pm: Sandberg: Facebook loves brands. Brands love Facebook.

The end.

3:37 pm: More TV talk in this call. Quite a direct shot over the bow at Twitter, the social company that has long promoted its "second-screen-ness" and complementary nature to television.

3:38 pm: Ebersman again on spending: Hardware costs probably going to go down, but product development is a variable.

5:39 pm: Hello again! It's Peter Kafka! I'm very excited!

Some talk about lumps and inflections re: mobile.

There was "more feed eligible demand" this quarter, says Ebersman. Yet, price didn't drop as they sold more ads.

5:43 pm: New question: Five percent of News Feed is now ads. Is that the "right" number and how does that vary across geography? Also a multipart question I didn't get.

Ebersman: Re: Five percent, it was 0 percent a year ago. We're happy with it. Varies by geography, and also by person (which maybe explains why I don't see that many ads in my feed compared to some complainers).

5:45 pm: Q: When are you going to get around to rolling out video ads? Also, what's going on in Europe?

Sandberg: We totally have video ads - you can embed a video in your post. "We're exploring how we can expand that" but if you think I'm going to talk about a product we haven't announced, then I would like to sell you a premium Bebo membership.

5:46 pm: Q: Hey Mark, how do you get partners to participate more actively in your platform? (And not worry you'll dump them in a year?)

Zuckerberg: We've been charging developers for distribution, and they like it. That's a shift.

5:48 pm: Big picture question for Zuck. How has life/perspective changed since you wrote founder's letter in your S-1 (14 months ago?)

Zuck: We hit the 1 billion people mark, which used to be a rallying cry. Now we have bigger ambitions. But now, meh. "The real goal is to connect everyone in the world, and map out everything there is." But! We weren't happy with mobile 18 months ago, so we had to do a lot of work on it. Coming into 2013, we started to see that we were in better shape.

So: Sort of a big picture answer. But maybe not really?

3:50 pm: Isaac here again!

Sorry about the timestamp.

3:50 pm: I swear we aren't time traveling.

3:50 pm: Question: Really guys, what ad units made you guys kill this quarter so hard?

3:51 pm: Sandberg: Direct response marketers are big contributors to growth. E-commerce doubled! They use all sorts of our ad products.

Lots of growth in mobile app install ads. Small market, but we offer a product that no one else has.

Yep, that ad unit is shining.

3:53 pm: Again, a question on growth.

Really, how?

3:54 pm: Direct response marketers are bumping up their ad budgets because they're getting good returns, Sandberg says.

Okay then.

3:55 pm: Ooh! A sort of sideways question on hiring and perhaps a way to talk about the ZuckerPAC, Fwd.us.

3:55 pm: Mark takes the hiring question.

Hiring great people is hard. But "our country doesn't produce the volume of engineeers that our companies want to hire." So basically that's why he's doing this Fwd thing.

3:56 pm: Sandberg highlights General Electric's Instagram campaigns.

They aren't paid ads, but rather fancy photos of GE-related products and such.

In other words, brands are willing to experiment.

3:57 pm: A custom audiences question - Sandberg said they've doubled the number of marketers using that particular product over the period of two quarters. Lots of big brands doing it.

3:58 pm: Sandberg plays up "PMDs" - or third-party ad sellers - and wants brands to buy through multiple sales channels.

3:59 pm: Last question is a softball. Why do consumers like your stuff?

3:59 pm: Zuckerberg says Instagram is easy, everyone loves photos and capturing moments.

4:00 pm: His comments on Facebook "Home" are interesting.

Look at it over the long term. Sort of like a seed that Facebook is planting.

"Expect these to become market-leading products."

4:00 pm: Just look at how naturally they fit into the flow of peoples' daily lives to get an idea of how long it will take to get popular, Zuckerberg says.

4:01 pm: And we're done!

Kafka and Isaac - out.

Don Mattrick Debuts as New Zynga CEO, With Loss Expected in Q2

Former Microsoft Xbox head and new Zynga CEO Don Mattrick will helm his first quarterly report and conference call later today, after the company's founder and former CEO Mark Pincus removed himself from the top job several weeks ago.

Unfortunately for Mattrick, the San Francisco online gaming company is expected to report a second-quarter loss of seven cents per share, a decline from last year. On an adjusted basis, the loss will be less. Revenue is also expected to be down, around $185 million. Zynga will report after the markets close.

Such lackluster results might be the new normal for a while, with Zynga still in turnaround mode as it seeks to find lucrative new businesses, especially in mobile.

The tone and tenor of the new leader will be much watched by Wall Street, which will be interested in what Mattrick has in store. And although the Q2 results are not under his watch, Mattrick has already been at the job since July 8, working at its HQ in the city, having moved his family from up north to a house he owns in Silicon Valley.

One can expect a tougher message from Mattrick, who has a lot of experience in turnaround situations, and very little sugar-coating of the difficult situation that the company finds itself in now.

He might not get too specific, though, such as whether or not he will preside over additional staff reductions. Such cuts had already started under Pincus, who laid off more than 500 employees in June.

Pincus will apparently be on the call later today at the start, but only for a short while, as it will clearly be Mattrick's show from now on.