Shifting to Mobile*

With its Q1 2014 earnings, Facebook demonstrated its continued structural shift to a mobile company. The company’s mobile active users for the first time crossed the 1B mark. Mobile active users are also growing faster than any other user base segment. This user base shift is reflected in Facebook’s changing revenue composition, bearing out the company’s past commitment to transition to a mobile-first company.1

Facebook’s user base now sits just below 1.28B MAUs (monthly active users). When we visualize Facebook’s usage composition we can see that its mobile user base is on track to reach or exceed its current total user base. We can also see that mobile-only usage is growing quickly, increasing 15% sequentially. We can conclude that Facebook is increasingly hired as a mobile platform.2 It is unsurprising, then, that Facebook’s revenue composition reflects this shift.

Facebook's usage composition: monthly active users (desktop + mobile), daily active users (desktop + mobile), mobile monthly active users, mobile-only monthly active users, Instagram, WhatsApp

Facebook saw $2.5B in revenue in the first quarter, a 72% year-over-year increase. The company’s payments business saw only a modest year-over-year increase.3 The bulk of its revenue growth accrued to its advertising business. And it is here that we see the consequence of the shift in Facebook’s user base composition. In the first quarter, Facebook’s mobile ad revenue was 59% of its total ad revenue, up from 30% over the year-ago quarter.

Facebook's revenue composition: desktop advertising, mobile advertising, payments and other fees

More telling than the extent to which Facebook’s mobile advertising revenue has eclipsed its desktop ad revenue growth, is the speed with which this has occurred. On a sequential basis the ratio of mobile-to-desktop ad revenue has increased marginally; however, compared to the year-ago quarter mobile advertising revenue increased by a staggering 258%. By comparison, its desktop advertising revenue increased only 6.6% over Q1 2013.

Taken together, these data reinforce the message by Facebook’s executives that the company is continuing to push aggressively toward a mobile-first business. Through this lens, Facebook’s decision to separate its Messaging app from its mobile application, and its recent US-only launch of Facebook Paper make more sense: a disaggregated platform better serves its (increasingly diverse) mobile user base.

Notes

  1. Earning Release, Facebook Inc., 2014.
  2. Facebook also revealed that its now stand-alone smartphone Messaging app has 200M users. When combined with our assessment of its WhatsApp acquisition, the supposition that Facebook is almost exclusively focused on mobile seems valid.
  3. Facebook’s payments business still faces an incentives problem due to factors exogenous to the platform. As a result we should not be surprised that payments comprises an exiguous segment of Facebook’s revenue.
  4. * A longer version of this article is featured on Seeking Alpha.