Mobile was the highlight of Facebook’s 3Q results, as Facebook’s mobile advertising grew to ~$152mn. This rapid mobile ramp is encouraging as it showcases Facebook’s ability to draw advertiser display dollars into mobile (which generally continues to be a challenging medium for display advertising) as the company keeps innovating and improving monetization around its overall platform.
That said, it is important to note that for now we believe this quick mobile ad traction is largely (though not entirely) being driven by advertiser Facebook budget shifts away from poorly performing units (such as non-FBX right rail units) to new, better performing mobile Sponsored Story units. The availability of mobile units has indeed caused budget shifts within Facebook as desktop advertising year-on-year growth decelerated. In all, mobile contributed to 53% of Facebook’s total platform 3Q:12 advertising growth. This is due to multiple factors including: advertiser preference for better performing units on the platform, mobile making up a larger portion of the total Facebook use and ad units available and on-going general mobile ad unit expansion.
In our view, this growing mobile contribution speaks to the importance of modeling Facebook’s forward desktop and mobile advertising revenue separately. And as mentioned above, while most of mobile’s advertising growth is due to dollar shifts between units on Facebook, incremental transparency around Facebook’s mobile advertising run-rates gives us added precision in our modeling and showcases how we were previously under-appreciating Facebook’s total advertising opportunity.
Facebook has said that they still are not seeing any adverse effects on user engagement from the mobile Sponsored Story rollout, and as a result, we do not believe Facebook is likely to reduce the mobile ad unit load in the near-term. Facebook’s mobile advertising daily run-rate expand by 6X from ~$500k per day at the end of 2Q to $3mn per day at the end of 3Q.
We also expect the Facebook Ad Exchange to benefit 2013 results, as our most recent checks indicate it is ramping healthily and continues receiving advertiser interest. In all, we expect FBX to add $450mn of incremental advertising dollar growth in 2013.