Facebook Profit Jumps 71% -- Update

By Deepa Seetharaman Features Dow Jones Newswires

Facebook Inc. on Wednesday said profit rose 71% in the second quarter, as the social-media giant developed new products to offset concerns about slowing growth.

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Facebook reported earnings per share of $1.32, up from 78 cents a year ago and compared with the $1.12 per share projected by analysts polled by FactSet. Net profit was $3.9 billion in the second quarter, up from $2.3 billion a year ago.

Quarterly revenue rose 45% to $9.3 billion from the prior year's $6.4 billion. Analysts polled by FactSet expected Facebook to record quarterly revenue of $9.2 billion.

Facebook's formidable ad business, along with Alphabet Inc.'s Google, soaked up 99% of the online ad industry's growth last year, according to Pivotal Research. But while growth is still rapid, Facebook has warned that the number of ads in its news feed -- its primary source of revenue -- is hitting a ceiling. Last year, Facebook predicted that growth would slow in the second half of 2017.

Now, Facebook is under pressure to show that it has a plan to make money beyond the highly lucrative news feed.

This month, it started showing ads in its Messenger chat app and introducing ads in Marketplace, a Craigslist-like feature in the core Facebook app. Facebook has also been testing "ad breaks" in the middle of Facebook videos and ramping up ads in its photo-sharing app Instagram.

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Facebook is also investing in more lucrative ad products to help the company generate more money from every ad unit sold. In the quarter, Facebook debuted several new products to help advertisers more finely target their desired audience, such as one that aims to show ads to all the members of a particular household. Such highly targeted ads tend to be more lucrative for Facebook, analysts say.

The amount advertisers paid for clicks on Google, on the other hand, fell 23% in the second quarter, in part because Google is selling more inexpensive ads on YouTube, rather than its premium search ads.

Facebook plans to spend as much as 50% more this year to entice users to spend more time on its platforms, for example by buying original content that could in turn offer opportunities for advertising.

Facebook is in talks to buy original TV-style programming that would be featured in the company's mobile app. Facebook executives have indicated it could spend up to $3 million an episode in some cases, as part of Chief Executive Mark Zuckerberg's broader desire to transform Facebook into a "video-first" company.

The accelerated spending also accounts for hiring more engineers and content moderators.

So far, constraining supply has helped Facebook fetch higher prices for its ad units, according to advertisers and analysts.

Marketing-technology company Kenshoo said its clients saw the cost of some ads on Facebook rise 39% during the second quarter. Online marketing agency Merkle reported a 57% increase in the cost of in some ads on Facebook during that same period.

This continues a trend first seen in Facebook's first-quarter results, when its average ad prices rose 14%, the largest increase in five quarters.

Facebook's stock price was up 2% in recent after-hours trading.

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

(END) Dow Jones Newswires

July 26, 2017 16:59 ET (20:59 GMT)