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Since going public in May, it has been a glitchy timeline for Facebook (NASDAQ:FB) to say the least. The social-media giant has 955 million monthly active users, but it is still unclear if the company can convert its wide following into explosive profits for investors. Last week, Facebook announced its first earnings release as a publicly traded company. The results disappointed though, and shares plunged more than 15 percent in a single day. However, there were some positives for shareholders to take away from the earnings conference call.
Advertising is the foundation of Facebook’s relationship with revenue. In the second quarter, the company posted sales of $1.18 billion, a 32 percent increase from the same period a year earlier. Advertising accounted for $992 million of that amount, representing a 28 percent rise from last year. While the company still faces monetization challenges with advertising and mobile usage growth, Sheryl Sandberg, chief operating officer, offered some words of encouragement. Facebook recently launched Sponsored Stories in Facebook News Feed, which are features that marketers pay to highlight. Sandberg explains, “For example, if I post a review of a product I purchased at Walmart (NYSE:WMT), about 20 percent of my friends have seen the post, depending on things like when they check their News Feed. Using Sponsored Stories, Walmart can pay to boost distribution of this post so a larger percentage of my friends see it.”
Facebook is also working towards proving that its advertising tactics are more effective than traditional means. “We have partnered with Nielsen to demonstrate that Facebook ads are not just seen but remembered. Studies of over 500 ad campaigns show that on average, Facebook ads drive 98 percent that are ad recalls and 31 percent higher brand awareness than non-Facebook online ad campaigns. Independent research has also demonstrated that social context significantly increases both ad recall and brand awareness of Facebook ads,” Sandberg explains. While General Motors (NYSE:GM) voiced its doubts with Facebook advertising earlier this year, other companies are having more success.
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There were two specific companies that Facebook named on the conference call which benefited from the company’s specialized advertising. Barclaycard, a member of the Barclays Group (NYSE:BCS), purchased Facebook ads to promote NFL team-branded credit cards. The campaign targeted teams that people liked. The Facebook centered ads generated a 40 percent higher conversion rate than any other form of online ads. Sandberg notes, “This made their cost per acquisition 48 percent lower on Facebook than from other online ad buys. In total, 60 percent of the approved credit card applications from the campaign came from Facebook.” In order to promote its highly anticipated Battlefield 3, Electronic Arts (NASDAQ:EA) spent $2.75 million on Facebook ads. The gaming company estimates that $12.1 million of their sales came from these ads, representing a 4.4 times return on their investment.
While Facebook continues to make improvements to its advertising engine, the company is already seeing some results. The Sponsored Stories feature currently generates more than $1 million a day, with around half coming from mobile. The Zuckerberg led company is also making it easier for small and medium sized businesses to advertise and create business pages on Facebook, which should bode well for improving revenue and the bottom line.
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