Facebook reports sharp rise in revenue, shares dip

By Rishika Sadam and Dustin Volz

(Reuters) - Facebook Inc on Wednesday posted earnings growth that beat Wall Street's high expectations as the world's biggest online social network said daily mobile users exceeded the one billion mark for the first time.

Its shares were down 1.7 percent, in after-hours trading, at $124.97.

Mobile ads accounted for 84 percent of Facebook's total advertising revenue of $6.82 billion in the third quarter that ended Sept. 30, compared with 78 percent a year earlier.

The company is also reaping the benefits of a big push into video, both on Facebook itself and on the Instagram photo app.

"We're making progress putting video first across our apps and executing our 10 year technology roadmap," Chief Executive Officer Mark Zuckerberg said in a statement.

Facebook reported a 55.8 percent rise in quarterly revenue, to $7.01 billion, beating analysts' average estimate of $6.92 billion, according to Thomson Reuters I/B/E/S.

Facebook said about 1.79 billion people were using its site monthly as of Sept. 30, up 16 percent from a year earlier.

The strong numbers come as Facebook has struggled in recent months to combat allegations that it unfairly removes certain content on its service, and news in September that the company had for years overestimated how it calculates the average time users spend watching video.

But investors appear optimistic Facebook will continue to grow revenue through its aggressive expansion of mobile and video advertising.

More than 90 percent of Facebook's users access the social network through mobile devices, and the company now boasts daily average mobile users of 1.09 billion, up 22 percent from last year.

With the company's photo-sharing app Instagram and messaging apps WhatsApp and Facebook Messenger facing increasing competition from Snapchat, Facebook has been adding features to keep users hooked and attract advertisers.

The company said in September that Instagram's advertising base had more than doubled to more than 500,000 in six months. Instagram had about 500 million users as of June. (http://bit.ly/2f1SJfP)

Facebook took its attempts to boost user engagement to the workplace last month, launching a subscription-based enterprise version of its mobile app.

The company also launched Marketplace, a feature that allows people to buy and sell items locally, and has been focusing more on video to better compete with Google's YouTube.

Facebook is expected to generate about $22 billion in mobile ad revenue in 2016, according to research firm eMarketer, up about 67 percent from 2015. Total ad revenue is forecast to rise to about $26 billion, an increase of about 52 percent.

However, there are questions about how long Facebook can continue to boost mobile ad revenue, given limits to the number of ads that Facebook can show each user.

Net income attributable to Facebook shareholders jumped to $2.37 billion, or 82 cents per share, in the quarter from $891 million, or 31 cents per share, in the third quarter of 2015.

Excluding items, the company earned $1.09 per share. On that basis, analysts had expected 97 cents per share.

Up to Wednesday's close of $127.17, Facebook's shares had risen 21.5 percent since the start of the year.

(Reporting by Rishika Sadam and Supantha Mukherjee in Bengaluru; Editing by Saumyadeb Chakrabarty and Bill Rigby)