Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=227311
Story Retrieval Date: 7/23/2014 4:52:14 AM CST

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Facebook Inc.

Facebook unveiled Paper, a new aggregation app for iPhone, during its upbeat fourth-quarter earnings call Wednesday.


Facebook reinvents Paper; investors hit like

by Michael C.W. Murphy
Jan 30, 2014


Facebook users

Michael C.W. Murphy / Data from Facebook Inc.

Facebook's user base has risen to over 1.2 billion in 2013.

Facebook, the world’s largest and most profitable social network, may soon directly take on the traditional media outlets that have been losing market share to its posts and status updates for the past decade.

On Thursday, Facebook announced a new iPhone app that it is ironically calling Paper. The app, which will be available on the iTunes App Store Feb. 3, combines Facebook’s newsfeed with curated content and articles from partner sites including the New York Times and the Huffington Post, Facebook said.

It’s the latest salvo from Facebook, which has seen its 1.2 billion users rapidly shift their usage to mobile phones and tablets. Advertising revenue has followed.

Investors hit the “like” button Thursday bidding up the social network’s shares by 15 percent after the company reported that its fourth-quarter profit skyrocketed.

In the quarter ended Dec. 31, Facebook’s profit rose eightfold to $523 million, or 20 cents per diluted share, from $64 million, or 3 cents per share, in the same quarter the previous year.

Even so, the Menlo Park, Calif.-based company’s earnings came in just below Wall Street’s expectations. Analysts surveyed by Zacks Investment Research Inc. had been expecting Facebook to earn 21 cents per share.

Facebook saw the majority of its revenue shift from display advertising on its website to targeted advertisements on mobile platforms including its Android and iOS apps. Mobile revenue accounted for roughly 53 percent of Facebook’s advertising sales in the last quarter, up from 23 percent the previous year.

Sales rose by nearly 63 percent to $2.58 billion from $1.59 billion in same quarter the previous year. Advertising generates nearly 91 percent of Facebook’s revenue.

Facebook was the second-most visited website globally during the last quarter, according to Alexa Internet Inc., an Internet monitoring service.

“This was a great quarter and a great way to end the year,” said Mark Zuckerberg, Facebook founder and CEO. “We saw strong growth in engagement around the world, and we’re very pleased with the growth of our ad business, especially on mobile.”

Facebook will try to build on its mobile growth with Paper and other new standalone mobile apps. “Our vision for Facebook is to create a set of products that help you share any kind of content you want within the audience you want,” Zuckerberg said.

Rick Summer, an analyst with Morningstar Investment Services Inc., said he was impressed by Facebook’s mobile growth. “After its long delay in building mobile advertising products, we believe the company is a preeminent mobile advertiser,” he said in a research note.

Some analysts argue that Facebook will need to aggressively grow to be able to maintain its impressive revenue figures, especially after a study last year conducted by the European Union showed that younger people are not joining the social network at nearly the same rate as in previous years.

Facebook has tried to stem the departure with the acquisition of Instagram, the popular photo-sharing app in 2012. In November, Facebook also attempted to purchase the instant-messaging service Snapchat, popular with younger mobile users, for $3 billion, the Wall Street Journal reported. The offer was turned down.

Despite this, some analysts believe that Facebook’s core users will not be departing en masse any time soon.

“We believe hundreds of millions of users face switching costs that keep them from leaving Facebook,” Summer said. “People are unlikely to leave unless they can take their network of friends, content, and applications with them,” he added.

On an annual basis Facebook has had a banner year. Facebook earned $1.50 billion, or 60 cents per share, in 2013, up 28-fold from $53 million, or just 1 cent per share, in 2012. Chief Financial Officer David Ebersman attributed the rise in profit to proprietary new software and radically more cost-effective servers.

“We wouldn’t be able to deliver the profit and cash flow numbers we’re reporting today without the success of these efficiency investments,” Ebersman said on Wednesday’s call.

Revenue did not rise as sharply, climbing 55 percent to $7.87 billion from $5.08 billion.

Facebook shares closed Thursday at $61.08, up $7.55, or 14 percent.