Facebook issues revenue warning over mobile growth
FACEBOOK has warned investors that the rapid growth of its mobile apps threatens its long-term financial prospects as users increasingly desert their desktops.
A week before its Wall Street flotation, Facebook said the number of users of its and apps for smartphones and tablets is growing quicker than the number of adverts it is serving up because it has not developed its mobile advertising strategy.
“We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users increasing more rapidly than the increase in the number of ads delivered,” Facebook said.
As more people use mobile devices to chat to friends and post pictures yet Facebook remains unable to make money from them, “our financial performance and ability to grow revenue would be negatively affected”, the dominant social network admitted.
Facebook made the disclosure in an update to its regulatory filings, ahead of its highly-anticipated Initial Public Offering next week. The flotation is expected to raise as much as $13.6bn on a valuation of up to £96bn.
The changes show mobile is an increasingly urgent problem for Facebook to solve in order to continue its financial growth.
Last year, 85 per cent of Facebook’s $3.7bn revenues came from advertising served up on its main website. It meanwhile only made its first tentative steps into mobile advertising in March by offering to insert “Sponsored Stories” into the “news feed” on smartphones and tablets, which is typically the jumping-off point for users.
The firm’s own figures show that more than half of its 901 million users in March accessed their account on the move. According to ComScore, Facebook users are also spending most time where the firm makes the least money; on average 441minutes on mobile in March, compared to 391 minutes for traditional website users.
Aware of the trend, Mark Zuckerberg, Facebook’s founder and chief executive, has been on a pre-IPO shopping spree for mobile assets, including the photo-sharing app Instagram, bought for $1bn last month, and Glancee, a “social discovery” app, which helps smartphone users meet people with similar interests based on their location.
Facebook is also ramping up efforts to open revenues streams that could supplement mobile advertising if it proves difficult. Today [Thursday] it announced a mobile app store to promote games and other software that exploit Facebook connections. As well as showcasing popular apps on Apple and Google’s app stores, such as the Pictionary-like game “Draw Something”, Facebook will sell apps based exclusively on its network and take a 30 per cent share of revenues.
Although Facebook’s revenues rose to $1.06bn in the first quarter, from $731m a year ago, its profits fell to $205m from $233m, which it blamed on hiring more staff, and rising marketing and development spending.