Facebook Revenue Surges, Fueled by Mobile -- Update

By Deepa Seetharaman Features Dow Jones Newswires

Facebook Inc. reported another surge in revenue in the first quarter, as more advertisers flocked to the platform despite questions about its video-ad performance and handling of violent, graphic content.

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Revenue rose 49% to $8.03 billion, up from last year's $5.38 billion and easily topping analysts' estimate of $7.83 billion, according to data compiled by FactSet. The social-media company reported first-quarter net income of $3.06 billion, or $1.04 a share, compared with $1.73 billion, or 60 cents a share, a year ago.

Facebook's user ranks grew to 1.94 billion from 1.86 billion at the end of 2016.

Shares of the company edged 1.2% lower in after-hours trading.

The jump in revenue was a sign of how marketers are increasingly embracing Facebook and its Instagram photo-sharing app, where Facebook's users are spending more time watching video. Chief Executive Mark Zuckerberg has pushed his company to weave more video throughout Facebook's products, building on its strength in mobile -- and mobile advertising -- that has fueled Facebook's growth for years.

But in prior quarters, Facebook has cautioned that revenue growth will drop "meaningfully" in the middle of 2017 as the company stops jamming more ads into the news feed.

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Video could fill the growth gap, analysts say.

Facebook has been working on its video ad products. Earlier this year, Facebook started testing ad breaks -- ads that appear in the middle of a video -- in both live broadcasts and on-demand videos and tweaked a setting so sound is on by default in some videos. It's also fielding pitches for TV-like original programming, in the hopes that weekly shows on Facebook can draw marketing dollars that have traditionally gone to television.

Even so, advertisers aren't entirely sold on Facebook video ads. Facebook's video product remains "uncertain ground," according to a new report by GroupM, the ad buying unit of WPP PLC. For every 20 video ads served in the news feed, just one was watched for 10 seconds or longer and three watched for at least three seconds, the report said.

Some of that skepticism lingers from concerns over how Facebook measures video ad performance, sparked by the company's disclosure last fall that it had vastly overestimated average viewing time for video ads on its platform for two years.

While some advertisers have reeled back from Facebook and put more money towards television, those companies represent a fringe group, said Bryan Wiener, executive chairman of digital ad firm 360i. "It's not a hailstorm, it's not a tornado -- it's just at the margins," he said.

Other advertisers are still pouring dollars in. Several marketing agencies said their clients spent more on Facebook in the first quarter. Marketing-technology company Kenshoo, which manages about $6 billion in marketing spending a year, said its clients were spending 41% more on social-media ads, largely Facebook. Major e-commerce companies working with ad-tech company Nanigans spent 16% more on Facebook during the first quarter.

And demand for Facebook ads isn't expected to slake anytime soon. According to a RBC Capital Markets survey, 65% of advertisers buying Facebook ads plan to spend even more. Nearly 40% told RBC that they spend more than a fifth of their online budgets on the social network, up from 31% in February 2016, according to the survey published in late March.

Still, concerns about Facebook's handling of violent, graphic content, especially on its live-video product, could give advertisers pause, some analysts said. Earlier Wednesday, Chief Executive Mark Zuckerberg pledged to hire 3,000 more content reviewers over the next year so inappropriate material is removed from the site more quickly. Last month, Facebook promised to conduct a review of its reporting process.

Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com

(END) Dow Jones Newswires

May 03, 2017 16:42 ET (20:42 GMT)