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Facebook Inc (FB)’s Quarter of Mobile Domination

What on earth could send shares of a seemingly overvalued company skyrocketing 15% in after-hours trading? Accelerating growth rates and mobile domination.

Posting big numbers where it matters most
Talk about a blowout quarter. Surprises don’t get much better than Facebook Inc (NASDAQ:FB)‘s second-quarter results today. Facebook was expected to deliver EPS of $0.14 and revenue of $1.62 billion. Instead, the company reported EPS of $0.19 on revenue of $1.81 billion. Let’s take a close look at the important metrics.

Mark ZuckerbergAccelerating growth rates. Last quarter, Facebook Inc (NASDAQ:FB)’s overall revenue was up 38% from the year-ago quarter. Its advertising segment, which contributes the majority of the company’s revenue, delivered a nice year-over-year gain of 43%. Going into the second-quarter results, I was hoping Facebook would at least maintain this handsome growth rate.

Turns out, I was much too conservative. Overall revenue growth was up 53% from the year-ago quarter. Advertising revenue (88% of total revenue) soared 61%. Facebook Inc (NASDAQ:FB)’s revenue growth rate meaningfully accelerated.

How did Facebook Inc (NASDAQ:FB) pull this off?

Growth in mobile. Not only did Facebook Inc (NASDAQ:FB) continue to boost its active mobile users, it is also effectively monetizing them.

Last quarter, Facebook Inc (NASDAQ:FB)’s mobile monthly active users, or mobile MAUs, accounted for 68% of Facebook’s total MAUs, yet mobile advertising revenue accounted for just 30% of total advertising revenue. Though Facebook’s sudden success at monetizing mobile was impressive, it wasn’t certain to what extent mobile MAUs could be monetized.

One quarter later, investors have a vastly larger foundation to build their projections on. Sequentially, mobile MAUs as a percentage of total MAUs were up slightly, at 71%. But mobile advertising revenue was up considerably, accounting for 41% of total revenue. Just three quarters ago, mobile advertising accounted for just 14% of total advertising revenue.

The once unanswered question of whether or not Facebook Inc (NASDAQ:FB) can monetize mobile now has a clear and stern response: Absolutely.

Other key metrics
Though Facebook Inc (NASDAQ:FB)’s success in mobile was definitely the highlight of the day, I had my eyes on several other key metrics when the company reported earnings. In particular, average revenue per user and engagement rates.

A 53% boost to revenue is definitely impressive. But was it simply a result of the network effect’s compelling invitation to new members? Or was it more effective monetization?

Though new members did join the addictive network, Facebook Inc (NASDAQ:FB)’s revenue boost was mostly due to better monetization. Average revenue per user in the U.S. and Canada was up 27%, year over year. Worldwide, average revenue per user increased 24% during the same period. Last quarter, Facebook’s growth rates in average revenue per user for the U.S. and Canada and worldwide was just 20.6% and 11.5%, respectively.

In short, Facebook’s redesigned timeline and newsfeed and its evolving ad business seems to be working.

But is all this revenue coming at the expense of the user experience? Nope.

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