Facebook Keeping Number of News Feed Ads Unchanged

Oct. 30 (Bloomberg) -- Facebook reported third-quarter sales that topped analysts’ estimates as advertisers boosted spending on promotions targeting users on smartphones and tablets. Jon Erlichman reports on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Facebook Inc. (FB) is putting the brakes on the number of ads that appear within user posts and said that younger teens aren’t using the site as much as they used to, suggesting revenue growth may lose steam.

The shares of the world’s most popular social-networking service retreated following comments by Chief Financial Officer David Ebersman, who said on a conference call that the number of news feed ads won’t rise significantly. The stock had surged as much as 18 percent after Facebook reported third-quarter sales that topped analysts’ estimates as advertisers spent more on promotions targeting smartphone and tablet users.

While usage among U.S. teenagers on the service was relatively stable during the quarter, there was a decrease among younger teens who log on daily, Ebersman said. Facebook hadn’t previously given any signs that members were being turned off by the number of ads they see while checking posts, pictures and other updates from their friends.

“It’s a fine line,” said Brian Wieser, an analyst at Pivotal Research Group in New York who rates the shares the equivalent of a hold. “They want to manage the user experience. They don’t want to overwhelm consumers’ use of Facebook with advertising.”

Photographer: Simon Dawson/Bloomberg

Facebook Inc., which has more than 1 billion users, has been building features to ad services to make it easier for marketers to reach consumers as they check on their friends’ activities via wireless devices. Close

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Photographer: Simon Dawson/Bloomberg

Facebook Inc., which has more than 1 billion users, has been building features to ad services to make it easier for marketers to reach consumers as they check on their friends’ activities via wireless devices.

The shares of Facebook, based in Menlo Park, California, were little changed in extended trading. The stock declined less than 1 percent to $49.01 at the close in New York, leaving it up 84 percent this year.

User Growth

“Given the high stock price, given the high valuation, there is room for disappointment,” said Scott Kessler, an analyst at S&P Capital IQ in New York who rates Facebook the equivalent of a hold. “The expectations, seemingly, have gotten very substantial.”

Chief Executive Officer Mark Zuckerberg has been building ad features that make it easier for advertisers to reach consumers. Facebook said revenue in the latest quarter surged 60 percent to $2.02 billion, exceeding the average projection for $1.91 billion, according to data compiled by Bloomberg.

Sales from mobile promotions made up 49 percent of total ad revenue in the third quarter, surpassing 41 percent in the prior period and analysts’ average prediction for 45.6 percent.

Profit, excluding stock-based compensation, currency effects on revenue and other items, was 25 cents a share, the company said in a statement today, compared with analysts’ average prediction for 19 cents.

Mobile Strategy

Net income was $425 million, or 17 cents a share, in the third quarter, as the social-networking service continued to invest in equipment, staff and services. That compared with a loss of $59 million, or 2 cents, a year earlier.

“The investments we’re making in mobile in particular are really paying off,” Ebersman said in an interview. “Mobile is already important, and we think it’s going to increase in importance because it’s where people are spending so much time.”

Facebook had 1.19 billion users during the quarter, up from about 1.15 billion in the second quarter. The number of mobile users rose 6.7 percent from the prior period to 874 million.

Facebook surprised investors in July with second-quarter revenue and profit that exceeded estimates, boosting investors’ confidence that the company is succeeding in selling ads that target wireless users. The stock climbed 30 percent the next day, and in August topped $38, the price at the company’s initial public offering in May 2012.

Facebook, which didn’t roll out mobile ads until early 2012, has been upgrading its offerings. Earlier this month, the company said it was expanding a service to let companies target users based on their online activity outside of the social network. Facebook’s Instagram unit for sharing photos and videos from mobile devices is set to start selling promotions.

“Facebook is well on its way to figuring out mobile advertising,” said Paul Sweeney, an analyst at Bloomberg Industries. “The good news for Facebook is that over 70 percent of its usage is mobile, yet only 49 percent of revenue comes from mobile, suggesting further upside.”

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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