Facebook revenue soars 41%, as ads and users keep growing

Facebook's robust revenue growth was fuelled by its mobile advertising business and an increase in daily users

It takes money, the adage goes, to make money. And Facebook is spending a lot of dollars to do just that.

The social media giant on Wednesday posted another quarter of robust revenue growth - up 41 per cent in the third quarter from a year earlier, to $4.5 billion - fueled by its mobile advertising business and an increase in daily users. Net profit rose to $896 million, up 11 per cent from a year ago.

The revenue and profit increases came alongside a surge in spending. Facebook's expenses totaled more than $3 billion in the third quarter, a 62 per cent leap from a year earlier, meaning that spending growth is outpacing sales growth. The company, based in Menlo Park, Calif, emphasized that it had no intention of slowing that down as it invested heavily in hiring, marketing, new technologies and other initiatives.

"We've made the way we do this very clear," Sheryl Sandberg, chief operating officer of Facebook, said in an interview. "We invest."

Investors shrugged off the climbing costs. Facebook's shares, which closed at $103.94 in regular trading, jumped 3.7 per cent in after-hours trading.

Facebook's earnings are a bright spot for the technology sector following a mixed set of social media results. Last week, LinkedIn easily beat Wall Street expectations with its quarterly results. Twitter, troubled by executive turnover and a reorganization of its engineering base, provided a weak earnings forecast and showed dismal user growth numbers.

Facebook is so far defying concerns about its spending habits - a criticism that has at times also plagued Amazon and Alphabet's Google - because the social network is on a short list of tech companies that make money from the wealth of mobile visitors to its smartphone app and website. The company said mobile advertising in the third quarter accounted for a colossal 78 per cent of its ad revenue, up from 66 per cent a year ago.

Revenue was also bolstered by Facebook increasing the number of ads it showed users over the past year, said David Wehner, the company's chief financial officer. And video advertising, a growth area for Facebook, is on the rise: More than eight billion video views happen on the social network every day, the company said.

Hand in hand with the increased advertising is more users to view the promotions. The number of daily active users of Facebook exceeded one billion for the first time in the quarter, up 17 per cent from a year earlier, with monthly active mobile users up 23 per cent, to 1.4 billion. Sandberg said Facebook was willing to spend aggressively on bets in advertising technology.

"This is because of the investments we've made in our advertising system that can take advantage of our scale and our targeting capabilities," she said.

Investors may also be looking past Facebook's rising costs because the company has moneymaking potential from some assets that it has yet to tap.

WhatsApp, the mobile messaging app Facebook bought in 2014 for more than $19 billion, has more than 900 million global users but does not bring in any revenue. Facebook also acquired Oculus VR, the virtual reality hardware start-up, for roughly $2 billion; it has not begun to sell the virtual reality goggles made by the unit. In addition, Facebook is building an airborne drone, one capable of delivering Internet access to parts of the world that are not easily receiving it. The effort is currently losing money.

Many on Wall Street also see a bright spot in Instagram, the 400-million user photo-sharing network that is in its earliest stages of introducing advertising on the service.

"With Instagram, you could see it adding maybe $2 billion to revenues when you get into 2017," said Robert S. Peck, an Internet analyst at SunTrust Robinson Humphrey. Peck has long been bullish on Facebook's non-monetised services, as well as the company's core advertising units that appear in its News Feed. During a conference call on Wednesday, Mark Zuckerberg, Facebook's chief executive, said the company remained in no hurry to start making money from these efforts.

"These kind of new platforms take a long time to develop," he said. "We think that virtual reality and augmented reality can be the next big computing platform."

Beyond the properties it owns, Facebook is dabbling in partnerships with media companies that could prove lucrative in the future. In May, the company debuted a feature called Instant Articles with a handful of publishers, including The New York Times, which lets users read articles from directly inside the Facebook app without being directed to a web browser.

Facebook is also preparing to introduce a stand-alone news application with partner publishers called Notify, according to a person close to the company, a product that will alert users to breaking news.

©2015 The New York Times News Service