Is Facebook Overly Reliant On Mobile Advertising Revenue?

It perhaps wasn’t the news that the markets had been expecting, but contrary to expectations Facebook has reported a sharp drop in profits for the last quarter of 2012.

Analysts had expected a stronger showing. Facebook’s shares had rallied from a low of $19 a share in September, and were trading at $31 as investors’ confidence in the social media giant returned. However, it now appears that the social media site only posted a profit of $64 million in the final 3 months of 2012. That might not sound so bad, but when you consider that at this time last year its profits were $302 million, then it doesn’t look quite so good. Is there a problem? Has Facebook lost its tag as the golden child of social media? Well, not according to analysts: much of the latest reduction in profits can be put down to heavy investment and Facebook’s increased spending on research and development.

If there is some good news for the social media mogul it’s that revenue for the corresponding period was up by 40% to $1.6 billion.

This growth has been attributed largely to a big increase in advertising revenue. Revenue from advertising for the same period was up by 41% to $1.3 billion. Interestingly a quarter of that revenue came from mobile platforms. Should we be surprised by these figures? Well, not really. Analysts had expected an increase in mobile advertising revenue for the period, and Facebook had made no secret of the fact that it intended to continue to invest heavily in its mobile reach. Speaking to the BBC, Raymond James business analyst, Aaron Kessler, said:

“Mobile revenue was expected to be a little higher. Overall it’s a solid quarter but maybe [the company has suffered from] high expectations going into the quarter.”

Mobile revenue is now an extremely important indicator of the company’s ability to capitalise on the growing global move towards mobile platforms. It’s proving to be a vital source of revenue for Facebook. Mobile advertising accounted for 23% of its overall revenue, justifying the platforms heavy investment in R & D over the last 18 months or so. That fact certainly hasn’t been lost on its founder and chief executive, Mark Zuckerberg. In a statement he stated:

“In 2012, we connected over a billion people and became a mobile company. We enter 2013 with good momentum and will continue to invest to achieve our mission and become a stronger, more valuable company.”

However, the markets were not quite as impressed. Shares in Facebook fell by almost 6% in after-hours trading in New York. This suggests that shares will continue to fall again today when the Nasdaq re-opens for business.

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