Wednesday, Facebook will announce how well it did financially in the first quarter of this fiscal year. The company has been aggressive about rolling out ad products and it deepened its relationship with firms such as Datalogix to give advertisers better purchasing data. Let’s take a look at what others think ahead of Wednesday’s earnings call.
Facebook did a number of things in Q1 to optimize its channels for game discovery and promotion. It tweaked the recommendations bar on canvas games to increase installs 5x over the last several months, improve the bookmarks bar menu 17 percent, notifications 15 percent, and App Center 30 percent. The company also promoted games in a homepage banner earlier this year and started running new News Feed stories about the games a user’s friends play.
However, Zynga, which has made up a large portion of Facebook’s payments revenue in the past has seen drop-off in revenue as players shift to mobile. That could have an impact on Facebook as well, though the social network has been seeking to diversify its platform with international developers and a better range in game genres.
Competition from other channels recognizing the opportunity, and Facebook’s rates increasing as more developers run install ads are risks. Still, the business is already humming for Facebook, and it’s poised for serious growth as the app ecosystem keeps getting larger and more competitive
That’s great news for Facebook, which needs more ways to monetize its 680 million daily mobile users. In Q4 2012, 23% of the social network’s advertising revenue came from mobile, but at that point mobile app install ads had only just launched.
When Facebook announces its Q1 2013 earnings tomorrow, I expect mobile will have grown to around 32% of ad revenue with app install ads playing a central role to that increase. While brand advertising was the rock of Facebook’s desktop ads business, app install ads could form the base of the mobile ad business it depends on.
Facebook is still looking for growth, despite its 1 billion-plus users. (Sterne Agee analyst Arvind) Bhatia expects 1.093 billion monthly active users, which would be up 21% year-over-year and 4% sequentially. This is down from 25% year-over-year growth in the 4th quarter and 5% sequentially. For engagement, Bhatia expects 642 million daily active users, which would be up 22% year-over-year and 4% sequentially. That would also be down from 28% year-over-year growth and 6% sequential growth in the prior quarter. Both the monthly and daily active user numbers are driven more than 90% by international users.
The value of Facebook ads is derived from the company’s knowledge of all the relationships and preferences of its users, something online marketers can now tap into thanks to the Facebook ad exchange, launched last summer.
That’s why investors should pay attention to what Zuckerberg and other Facebook executives say about the exchange — as well as mobile ad rates and revenue growth — during the company’s conference call this Wednesday.
The company’s ad markets are still nascent and fluid enough that even the best Wall Street analysts can’t be sure of what Facebook’s operating profit margins will be over the long term.
But after this quarter, retail investors should have a better idea of how the rise of mobile ads will affect Facebook’s business.
Readers: What do you think Facebook will announce in the earnings call?