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Facebook in the zone: 5 things it’s doing right

Facebook in the zone: 5 things it’s doing right

Facebook reports that it’s killing it with revenue, users and mobile

After all the news that came out of Facebook's earnings call Wednesday, the social networking giant has hit the zone.

Wall Street was pleasantly surprised by Facebook's financial results , while the company also had good news to report about user growth, mobile usage and Instagram.

"Facebook is hitting on all cylinders now," said Dan Olds, an analyst with The Gabriel Consulting Group. "Advertising revenue is up an astounding 57 percent year-over-year, with total revenue up 52 percent. Better yet, operating margins improved from 26 percent to 37 percent, leading to 115 percent higher profits at just over $2 billion. Facebook is definitely executing their plan in a big way."

Here are five things you should know that came out of Facebook yesterday.

1. The bottom line is looking up

Facebook reported in its first-quarter earnings call on Wednesday that the company went way beyond Wall Street's expectations.

The social network reported revenue for the quarter of $US5.38 billion, compared to analysts' expectations of $US5.26 billion.

"We're also pleased with our business results," Mark Zuckerberg, Facebook's co-founder and CEO, said during the conference call with analysts. "Total revenue this quarter grew by 52 per cent year-on-year to $US5.4 billion, and advertising revenue grew by 57 per cent to $US5.2 billion."

Wall Street analysts were enthused, and the company's stock price jumped to $US116.55 a share, up from $108.89 at the previous day's close.

"Every once in a while a company gets into that magical zone. Facebook is in that zone," said Jeff Kagan, an independent industry analyst. "This is the nirvana that every company strives for but very few ever hit. This will not last forever, but it could last for several years."

2. Facebook crushes it with mobile

Facebook also reported that 82 per cent of its advertising revenue in the first quarter came from mobile. That's up 73 per cent from the first quarter of 2015.

That is a night-and-day difference from how the company had been looking at mobile before Facebook launched its IPO.

Four years ago, in its run-up to Facebook's IPO, the company called mobile one of its biggest challenges. In an amended filing with the U.S. Securities and Exchange Commission, Facebook said at the time that it didn't know how to monetize users' move from the desktop to a mobile device.

Now several years later, Facebook is the mobile player that other companies look to for guidance.

"Facebook is killing it in mobile. Why?" asked Olds. "I think it's because their apps, like Instagram and Messenger, are driving huge amounts of traffic for the company and that means big advertising revenue. With their vast number of users, any new application that Faceook brings out is sure to get a fair trial."

3. Facebook users still coming on strong

Facebook also reported that its user base grew from 1.59 billion to 1.65 billion, and active monthly users on mobile have reached 1.5 billion.

"We started 2016 off well," Zuckerberg said during the earnings call, nothing that 1.09 billion people use Facebook every day. "In recent weeks, we're also consistently seeing more than 1 billion people using Facebook on mobile every day."

While the numbers don't show staggering growth, it's still solid growth, which has been so elusive to social rival Twitter.

Olds noted that it's impressive for Facebook to continue to grow its user base when it's already so big.

"I was surprised Facebook was able to grow users as much as they have in the last year," he added. "It's damned hard to get much growth when you already have 1.59 billion users around the world. Still, they managed to grow, which is a big achievement, particularly when you contrast it to Twitter, which is having trouble growing its user base."

Olds credits Facebook with reaching out to younger users with Instagram, while reaching the other age groups with Facebook itself.

"It's a great mix," he said.

4. Instagram and its younger users

Instagram is the Facebook-owned mobile social network that has grabbed the younger users that have remained so elusive to Facebook itself.

Users age 25 and younger aren't as enamored by Facebook as adults, mainly because they don't want to be sharing their photos and updates with their parents, aunts and uncles.

By acquiring Instagram, Facebook has solved that issue.

"We're also very happy with the way that Instagram is growing, with more than 400 million actives and more than 200,000 businesses advertising every month," Zuckerberg said. "Now we're focused on making the user experience even more engaging. With more content on Instagram all the time, people are currently missing about 70 percent of what's in their feed."

Zuckerberg said he intends to fix that issue. "That's why in the first quarter, we started rolling out Feed Ranking to help you see more of the posts that you care about," he added. "This is a long-term effort. But News Feed shows that ranking creates the best and most engaging experiences for our community."

Olds said it only makes sense for Facebook to invest in keeping Instagram a popular destination.

"Instagram is hugely important to Facebook as it's the vehicle that young users are using the most," he said. "There aren't a lot of challengers to Instagram right now, but I could see Twitter mounting a challenge with Periscope and their set of apps."

5. It costs big bucks to keep Zuckerberg safe

In an amended filing with the SEC on Wednesday, Facebook reported that it spends about $5 million a year on security for Zuckerberg at work and also at his homes.

His security effort, which includes personnel along with equipment installation and maintenance, cost the company about $US12 million between 2013 and 2015.

While that might sound like a lot, it's a smart investment, said Patrick Moorhead, an analyst with Moor Insights & Strategy.

"Zuckerberg, right now, is inextricably linked to the success of Facebook," Moorhead said. "If anything were to happen to him right now, the stock would plummet in the billions of dollars. Every cent paid for his security is a good expenditure."

Kagan noted that with a recent threat from the terrorist group ISIS, it makes even more sense to focus on keeping Zuckerberg safe.

"The more powerful Facebook grows, the more of a target they are for the terror community," added Kagan. "So I expect to see them continuing to improve the security around the company and the senior executives."

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