UPDATED: As Mobile Ads Drive Revenues and Teen Use Declines, What’s Next for Facebook?

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ADOTAS — With revenue climbing to $2.02 billion from $1.26 billion just a year ago, Facebook is finally gaining a firm foothold, roughly six quarters after its IPO in May of last year. The social network’s Q3 2013 numbers surged past Wall Street’s projections, revealing a 60-percent increase in revenue that the company attributes to strong progress in its mobile advertising operations.

In fact, Facebook’s quarterly earnings indicate that $1.8 billion of this came specifically from online advertising, with net income rising to $425 million, or 17 cents per share. Mobile ad revenue on smartphones and tablets was right around $880 million, about half of the company’s total ad revenue.

“Facebook’s continues to capitalize on mobile, where no other ad publishing channel has succeeded,” said Adquant CEO Joe McCormack. “Mobile now accounts for half of Facebook’s ad revenues, because advertisers are willing to pay a premium for the quality offering that’s available via Facebook’s mobile news feed. We saw this trend start in Q2 this year and we expect it to continue, especially as Facebook has recently made several more improvements to their mobile offering including video ads for mobile apps and the ability to create campaigns that focus on re-engagement for users who have already installed an app or game.

“Recent surveys show that marketers still doubt the effectiveness of advertising in social media, but Facebook appears to be proving them wrong with mobile ads,” said Brian Suthoff, vice president of Strategy and Business Development at Localytics. “According to our research, 81 percent of mobile users acquired through Facebook use apps more than once, compared to 78 percent of users acquired organically, and they continue to perform nearly as well over the longer term.”

“It is quite certain that next quarter will be the first ever where Facebook’s mobile business surpass its online,” added Sephi Shapira, CEO of MassiveImpact. “This is a clear indication of the huge potential that the constantly evolving mobile ecosystem holds for new comers that position themselves correctly. Facebook’s mobile ad strategy deeply resonates with a core market trend towards performance advertising, maintaining this focus will propel Facebook into a position of leadership.”

In discussing his company’s remarkably successful shift to a more mobile-centric platform, Facebook CEO Mark Zuckerberg offered a glimpse of how The Social Network will next evolve.

“Newsfeed is the most-used app on people’s phones by far,” said Zuckerberg during yesterday’s quarterly-earnings conference call. “But this is just the beginning. When we get to the point of where people can ask any question to Facebook and have it answered by our community, it’s going to be very powerful.”

Really, you say?

McCormack said Facebook’s efforts to monetize their social search and the SMB market are important  or investors to keep an eye on in the future.

“Both items were mentioned by Facebook on the earning call and have huge revenue potential,” he said. “Last quarter Facebook introduced the ability to use their Graph Search on post content, yet they still haven’t created a search advertising product for advertisers. Once they do add search ads, it could have an impact on the wider PPC market as Google, Yahoo! and Bing will have to play defense to protect their market share. Facebook also mentioned that they have 20 million small business with Facebook pages, yet only 1 million advertisers. These 20 million SMBs should be a huge growth driver for Facebook in 2014.”

With all this traction, one area of concern for investors is Facebook’s declining popularity amongst young teens. It appears as though young adults are not flocking to the social network as much as before and have now elected to use competing communication platforms like Snapchat and Vine.

According to Facebook CFO David Ebersman, the company “did see a decrease in daily users specifically among younger teens,” although as TechCrunch reports, he did preface it by saying that usage among US teens overall was stable from Q2 to Q3.

Still, the numbers are still coming in. Snapchat says approximately 350 million photos and videos are sent through its system each day, and this is right around the same figure on photo uploads for Facebook.

Eerily enough, Facebook is now almost a decade old. And in tech years, that’s pretty much ancient. Young teens around the world want something new and exciting to latch on to, and if they see their parents who are (gasp) in their thirties and forties  using Facebook, then they might shy away from that form of social networking.

Also, young teens are focused more and more on apps and mobile devices rather than full-on social network platforms that require a lot of time to get up and running. They are less about manicuring their online personas and friend lists and more about the act of quick communication. Lastly, teens want something exclusive that’s just for their friends and peer groups. Technologies like Snapchat play perfectly into their desire for a quick, no-nonsense way to say in touch with friends through short snippets of multimedia content.

Advice to Facebook: Buy Snapchat. It’s the only way to retain the young teen demographic and they are still too young to realize (or care) if it’s owned by Facebook anyways. Hell, I still forget they own Instagram.

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