Facebook shares surged by more than 22 per cent this week after the social network's latest quarterly results confirmed the hopes of investors looking for movement on the mobile front.
Investors have wanted signs of a mobile strategy for some time now.
“We should be able to reach more people on mobile than desktop – for us, that isn’t really controversial,” said chief executive officer Mark Zuckerberg. "We're just getting started."
Facebook Inc grew mobile advertising revenue several times in the third quarter, a faster-than-expected pace that helped drive shares in the world's No 1 social network nearly 13 percent higher. Facebook said on Tuesday that it now gets 14 percent of its advertising revenue from mobile ads, helping to reassure investors that the social network is beginning to figure out how to earn money off smartphone and tablet users.
Mobile ad revenues totalled roughly $150 million, up from an estimated $40 million to $50 million in the second quarter and almost nothing in the first. "This certainly dispels the most bearish view, that Facebook couldn't monetize people on phones or tablets," said Colin Sebastian, an analyst with Robert Baird & Co.
Mobile advertising has been among the key investor concerns hanging over Facebook, helping slash more than $40 billion off its market value since its May IPO. As its users increasingly access the social network with their smartphones, Facebook has struggled to transition its business to mobile devices. The mobile ads helped reignite Facebook's overall advertising business during the third quarter, following several consecutive quarters of slowing revenue growth that raised questions about Facebook's long-term prospects.
Advertising revenue increased 36 percent to $1.09 billion, up from 28 percent growth in the second quarter. But revenue from its payments and other businesses increased just 13 percent to $176 million. Mark Zuckerberg, the 28-year-old chief executive who created Facebook in his Harvard dorm room, said mobile was the "most misunderstood aspect" of the company and took issue with the "myth" that Facebook could not earn money on mobile.
"Over the long run we're going to see more monetization per time spent on mobile than on desktop," Zuckerberg said on a conference call with analysts on Tuesday. The company's shares leapt nearly 13 percent to $21.97 in after-hours trading on Tuesday. Facebook said it had crossed the 1 billion threshold for monthly active users by September 30, of which 604 million were mobile users, a gain of 61 percent from a year earlier. The shift to mobile has challenged many of the Web industry's top companies. Google Inc is the No 1 provider of smartphone software with its Android operating system. But the company missed Wall Street's revenue targets in the third quarter, with some analysts blaming the shortfall on its increasing reliance on lower-priced mobile ads.
Facebook posted a net loss of $59 million or 2 cents a share in the three months ended September 30 after booking a big provision for income taxes. Excluding share-based compensation and income tax adjustments, it earned 12 cents a share, a penny higher than the average analyst expectation. Facebook's third-quarter revenue of $1.26 billion was a hair above the average analyst expectation of $1.23 billion, according to Thomson Reuters I/B/E/S.