Facebook's Q2 revenue jumps 28% as mobile ads power growth

Brief:

Facebook reported a 28% revenue gain to $16.9 billion in Q2 from a year earlier, as the social media giant shook off negative headlines and a record-setting fine for its data-sharing practices this week. Mobile ad revenue hit $15.6 billion, or about 94% of total ad revenue, COO Sheryl Sandberg said in the Wednesday conference call with analysts. The figure was 12% higher than the $13.9 billion reported in Q1, highlighting the importance of mobile ads for Facebook.
Mobile-first video accounted for more than 50% of video revenue for the company, Sandberg said. Brands are working to develop "thumb-stopping" creative that hooks mobile viewers faster than 30-second TV ads. "The best mobile-first ad or ad on Facebook gets to the main point or gets to the product in the first three seconds," she said.
Facebook's "blue" app, its oldest and biggest product, boosted its user base by 8% to 2.41 billion in Q2 from a year earlier, making it the largest social media platform worldwide. Daily active users (DAUs) rose 6% to 1.59 billion from a year earlier. The figures generally don't include users of Instagram, WhatsApp or Oculus, per Facebook's report.

Insight:

Facebook's results not only indicate the importance of mobile ads to the company's growth, but also demonstrate that the social network has managed to outpace the expansion of the broader digital ad market. In the U.S., the digital ad market is set to grow 19% to $129.3 billion, and $87.1 billion of that will go to mobile platforms, eMarketer recently estimated. Rival Snap this week also reported an 8% gain in Snapchat users from a year earlier, but the younger company's revenue jumped 48% to $388 million, a small fraction of Facebook's quarterly haul.

Sandberg said the company saw 3 million advertisers across Facebook, Instagram and Messenger in Q2, but didn't provide a comparison with prior periods.

Sandberg touted the company's efforts to expand its customer base among smaller businesses by giving them free ad tools that "previously only the largest companies could access." Facebook in May introduced an Automated Ads service that guides advertisers through a series of questions and provides a customized marketing plan with as many as six creative options, she said. The company also introduced video editing tools to help small- and medium-sized businesses to create videos from images they already had. Fernwood Fitness, a chain of women's health clubs in Australia, used the tools to build a mobile-first campaign that doubled conversions to new memberships, Sandberg said.

Facebook posted $2.6 billion in profit, which included a one-time charge of $2 billion as part of its $5 billion settlement with the Federal Trade Commission and an accounting change, per a company announcement. However, Facebook also disclosed that the FTC last month began a separate antitrust review of the company. In addition, the company referenced Attorney General William Barr's announcement this week that the Justice Department will review leading internet companies.

It's too early to tell whether antitrust authorities will recommend that Facebook be broken up, reversing its acquisitions of popular apps like Instagram and WhatsApp that continue to rank in the top five of global downloads.

"We're trying to do our part to advocate for a good regulatory framework in each area," CEO Mark Zuckerberg said on the conference call. "My broader concern is that if that doesn't get put in place, then frustration with the industry will continue to grow."