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A smartphone user shows the Facebook application on his phone in the central Bosnian town of Zenica, in this photo illustration, May 2, 2013. (© Dado Ruvic / Reuters/Reuters)
A smartphone user shows the Facebook application on his phone in the central Bosnian town of Zenica, in this photo illustration, May 2, 2013. (© Dado Ruvic / Reuters/Reuters)

Facebook revenue soars 61 per cent on surging mobile ads Add to ...

Facebook Inc. is continuing to take advantage of the growing amount of time consumers spend transfixed by the screens of their mobile devices.

The world’s largest social network beat the street’s expectations for its second quarter earnings report on Wednesday, driven by a growth in mobile advertising.

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Facebook’s revenue rose 61 per cent to $2.9-billion (U.S.) in the three months ended June 30. Analysts surveyed by Thomson Reuters I/B/E/S had predicted revenue of roughly $2.8-billion.

Net income was $791-million, or 30 cents a share, compared to $333-million in the same period last year.

Facebook reported that mobile advertising now accounts for 62 per cent of its revenue. One year ago, mobile ads were 41 per cent.

That increase is indicative of a larger shift in advertising spending. While the dollars spent have not yet caught up to the amount of time people spend on mobile devices, advertisers are trying to figure out how to take advantage of this medium and spending has risen.

In the United States, for example, mobile ads are expected to account for nearly 10 per cent of all ad spending this year, according to research firm eMarketer – surpassing newspapers (which will account for 9.3 per cent of spending,) magazines, radio, and outdoor advertising.

While mobile can be a challenging medium for ads – smaller screens make for less real estate for banners – Facebook has taken advantage of the shift by offering advertising messages that appear right in the “newsfeed” that its users scroll through every day.

Facebook reported 654-million daily active users on average in the quarter.

However, the shift has also created a challenge for many of the 30-million businesses that have a presence on Facebook. Mobile users are shown fewer ads – and since more people are using Facebook on mobile, total ad impressions actually decreased in the quarter by 25 per cent and the price per ad rose 123 per cent.

Combined with that, Facebook has been tweaking its algorithm, which it says is meant to show more “relevant” content to its users. But it has also meant that advertisers have seen a huge drop in the number of people they are able to reach by posting on their branded Facebook pages. It’s a business move by the social media giant to force advertisers to consider paid campaigns more often, as opposed to relying on reaching people by creating content on the network for free.

“Our goal here is to make ads interesting and useful as your friends’ content on Facebook,” founder and chief executive officer Mark Zuckerberg told analysts on a conference call Wednesday. “...We expect to continue focusing on this for a long time.”

A challenge for Facebook going forward will be to mimic the North American growth it has seen in advertising, in the rest of the world. While its user base in Asia and the rest of the world outstrips its user numbers in the U.S., Canada and Europe – and international markets lead in user growth – the bulk of its revenue still comes from Europe and North America.

On the conference call, chief operating officer Sheryl Sandberg drew attention to the potential for Facebook advertising in other markets, referring to a campaign Procter & Gamble did in India. Since 80 per cent of the 100-million Facebook users in the country are on mobile, P&G conducted a campaign for its Gillette brand, targeted to mobile users.

“It reached 60 per cent of Gillette’s target audience and generated significant lift in both message and ad recall,” she said.

She also gave results for a global campaign from McDonald’s, which recreated World Cup moments with fries. That campaign reached 126-million people in 158 countries, she said.

Another area of development for Facebook will be auto-play video ads, which the company is currently testing with a small group of advertisers, and the Instagram photo-sharing service. Facebook indicated on the call that advertising in both of these segments is being developed slowly and will not contribute meaningfully to its earnings in the short term.

Follow on Twitter: @susinsky

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