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Is Facebook trending in the right direction?

30 Jul 2013

Following financial struggles post IPO, Facebook has come back fighting, appeasing investor concerns in the process.

Smashing financial expectations last week, the social networking site now has over one million advertisers on board, selling US$1.6bn in ads during the second quarter.

Founder and CEO Mark Zuckerberg revealed the figures to anxious investors, and many believe the results prove the company can blossom in the years ahead.

"The story of Facebook’s Q2 results is one of progress, regeneration and strategic investment." says Shiv Putcha, Principal Consumer analyst, Telecoms, Ovum.

"Coming off a poor run of results post IPO, investors were rightly anxious for signs of revenue progress at Facebook.

"This concern has been addressed more than adequately with earnings of US$1.81 billion for the quarter, well above analyst consensus expectations."

Putcha believes the 53% QoQ sales growth includes significant progress on the core strategic issue facing Facebook. Namely, how to drive advertising revenues from its increasing mobile traffic

"Facebook’s mobile revenues came in at US$656 million, which amounts to 41% of its total ad revenue base," Putcha says.

"More importantly, it is a significant 11% jump QoQ and indicates that Facebook is trending in the right direction as the business begins its pivot to mobile."

Momentum on the rise

The social media giant also addressed concerns about declining momentum in both its user acquisitions but also engagement according to Putcha.

"The Q2 numbers indicate the daily active users increased 27% YoY to 699million as Facebook becomes increasingly popular in new markets around the world," he says.

"Engagement also seems to be improving with Facebook claiming the ratio of daily active users to monthly has improved.

"Besides the new found momentum in consumer subscriber acquisitions, Facebook is also making inroads into the local business community which will be a significant driver for ad sales."

Video

Facebook also continues to invest in new products, especially video, notes Putcha.

But while no specifics were offered on services like Instagram Video and video ads on the News Feed, the company is reporting strong growth in users and their focus on growth over revenues from these new segments.

"Other products like Facebook Home have not had much success at all," Putcha adds.

"Overall, despite strong progress in ad sales and success in mobile, Facebook still has a lot of work to do as it strives to increase its share of the digital advertising market and also maintain its progress on the mobile business.”

Following Facebook's Q2 results, is the company trending in the right direction? Tell us your thoughts below