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The Taste of Crow: Facebook’s Incredible Profitability Surge

September 2013 Corporate

Like many marketing professionals, I was highly skeptical when Facebook (FB) did its Initial Public Offering about a year ago.  The actual IPO turned out to be somewhat of a comedy of errors when trading glitches soured the IPO process.

My feeling, as well as many others’, was that although Facebook attracted huge numbers of participants, there was no clear-cut business model that would lead to sustainable profits and earnings.  How wrong one can be!

The recent earnings report from the social networking giant were not just adequate, or even promising—they were outstanding.  The day the earnings report was issued, stock shares gained 20% in after-hours trading.  The company reported continued gains in its user base—17.3%—although at more realistic levels than the frenetic pace of its pre-IPO days.

While many start-ups don’t see anything resembling profits in their early days as public companies, Facebook reported a second-quarter profit of $333 million.   That translates to 13 cents a share compared with a first-quarter loss of $157 million (8 cents per share).

Revenues rose to $1.81 billion in the second quarter compared with $1.12 billion in the first quarter.  Any way you look at it, Facebook’s pay day has arrived and Mark Zuckerberg is a big-time player.

More significantly, Facebook is developing a viable business model.  Online advertising is proving to be a sustainable revenue stream.  In fact, its mobile-ad revenue now makes up 41% of total advertising revenue, compared to 30% in the first quarter.  In a statement, which reads more like an understatement, Zuckerberg told shareholders: “We’ve made good progress in growing our community, deepening engagement, and delivering strong financial results, especially on mobile.”

Such a statement is not typical of a twenty-something start-up entrepreneur.  It sounds like an intelligent, serious and experienced businessman.

The earnings report is a validation of Facebook.  No longer a fad, this company now has the potential to expand and grow through offering new products to its enormous and loyal user base.  It is no longer just a personal gossip mechanism but a proven way to deliver advertising messages to customers.  When Facebook starts segmenting its user base, it will have both the data and the marketing clout to open wide opportunities to hone in on specific target markets with poignant and relevant advertising messages.

As a skeptic, I, personally, marvel at Mark Zuckerberg’s vision and his ability to implement this vision.  This is why I am eating crow.



About the author

James T. Berger, Managing Editor of The Wiglaf Journal, through his Northbrook-based firm, James T. Berger/Market Strategies, offers a broad range of marketing communications, research and strategic planning consulting services. In addition, he provides expert services to intellectual property attorneys in the area of trademark infringement litigation. An adjunct professor of marketing at Roosevelt University, he previously has taught at Northwestern University, DePaul University, University of Illinois at Chicago and The Lake Forest Graduate School of Management. He holds degrees from the University of Michigan (BA), Northwestern University (MS) and the University of Chicago (MBA). Berger is an often-published free lance business writer who has developed more than 100 published articles in the last eight years. For more information, visit www.jamesberger.net or telephone him at (847) 328-9633.

James T. Berger
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