Keep Hitting That "Like" Button

Keep Hitting That "Like" Button

I don't know whether you'll share it with your friends or comment on the report card, but I'm sure you'll like the impressive numbers published by Facebook in its recent quarterly report.

"For nearly ten years, Facebook has been on a mission to connect the world," said Mark Zuckerberg, Facebook founder and CEO. "The strong results we achieved this quarter show that we're prepared for the next phase of our company, as we work to bring the next five billion people online and into the knowledge economy."

Status update
The company reported stellar numbers showing a 60% increase in revenue from $1.26 billion in the third quarter of 2012 to $2.02 billion this quarter. It reported outstanding earnings that bested analyst expectations of $1.91 billion in revenue with earnings of $0.18-$0.19 per share, instead generating $2.02 billion in revenue with $0.25 per share.

Advertising revenue was $1.8 billion, a 66% increase from the same quarter last year, whereas revenue from mobile advertising represented approximately 49% of the total advertising revenue for this quarter. The company also reported non-GAAP earnings of $621 million, nearly double the amount reported last year. Payments and other fees revenue was $218 million for the third quarter of 2013.

It was noted that the primary growth drivers in advertising revenue were the increase in the number of News Feed ads and the increasing number of companies using Facebook for marketing purposes. Mobile marketing has given a good boost to the advertising revenue, pushing the average price per ad up by 42% compared to last year. Also, total ad revenue increased 66% year-over-year during this quarter. The recent News Feed ads service has helped Facebook achieve this remarkable milestone in such a short span of time.

Add photos/videos
Some believe that Facebook is losing ground to more lightweight, temporary, photo-focused networks like Twitter (NYSE: TWTR), Snapchat, WhatsApp, and Instagram. In a recent survey conducted by financial firm Piper Jaffray, it was noted that only 23% of U.S. teenagers prefer Facebook compared to 44% earlier. This consumer segment is believed to spend $200 billion annually, which greatly helps the company's revenue, but these declining numbers can be alarming for the future.

Critics believe that people merely "join" Facebook, but "use" Twitter. Twitter is believed to have a higher level of user engagement compared to Facebook, as a user visits Facebook on a new event invite or a friend request, compared to tweeting just about anything on Twitter. Owing to its wider viewer spectrum, Twitter reaches out to more people when compared to Facebook's stringent privacy and security rules, which restrict the number of followers toward a particular post. It is always advantageous to have an active Twitter stream compared to a restricted post on Facebook.

But again, what a screwdriver can do cannot be done with a hammer. Facebook has its own reasons to attract users, and its charm will not soon subside, at least among teenagers. Although surveys may portray declining numbers numbers of young users, I firmly believe that the goodwill, popularity, and connectivity that Facebook has achieved can help bring the numbers back up.

What's on your mind?
Facebook is the most prominent social networking site with regard to referral traffic, thanks to its huge user base, better technology, and higher user engagement. Twitter is doing remarkably well with its decent user base, but has much lower user engagement. Twitter has over 218 million monthly active users, or MAUs, compared to Facebook's 1.18 billion MAUs. Facebook sent about seven times more referral traffic than Twitter to publisher's sites.

Facebook's direct rival, Google+ has over 530 million MAUs, whereas Facebook has 2.25 times more. Facebook sent 135 times more referral traffic than Google+, demonstrating that the latter is in its very early stages of user base monetization. Google lags behind and will have to do a lot of work to catch competitors.

Facebook developers
Zuckerberg and the management team are driving product development efforts toward offerings such as News Feed, Graph Search, and mobile apps that drive engagement for people of all age groups. The purpose of the recently formed Facebook AI group focuses on world-class artificial intelligence research involving all the data that people have shared on Facebook to date.

The company has initiated efforts like, a global endeavor with Samsung, Qualcomm, Ericsson, and other industry leaders to make affordable Internet access available worldwide. This is an effort to connect the remaining 5 billion people who are still not online, and thus not within Facebook's reach.

Also, the company's acquisition of photo-sharing service Instagram is reaping rich dividends, as the site now boasts 150 million monthly active users. These initiatives will, in all likelihood, allow the company to register more milestones in the future.

Facebook has come a long way in the last decade and has proved its dominance time and again. The decline of the teenager user base might only be a temporary phenomenon. First, there are statistical issues to contend with -- teenagers are more driven by hype rather than utility. When these same teenagers reach adulthood and seek to connect with old friends, they will invariably return to Facebook.

There is no reason to be jittery about Facebook's future prospects. It is uniquely positioned to reap rich dividends from its increasing daily user base, those who will always depend on it to stay connected on the social front. I suggest holding the stock now, and continuing to click that like button for some more time.

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Rishabh Jain has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published