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Facebook profit surges on mobile ad sales

Soundly beating forecasts, the Web giant reports third-quarter earnings of $425 million, compared with a loss of $59 million for the same period last year.

October 30, 2013
  • Facebook shares have risen threefold over the past year, trading as high as $54.83, after enduring a long slump. Above, Facebook headquarters in Menlo Park, Calif.
Facebook shares have risen threefold over the past year, trading as high… (Jeff Chiu, AP )

SAN FRANCISCO — Facebook's 60% jump in revenues may put to rest any nagging doubts investors have had about the giant social network's ability to sell mobile ads.

Advertising on mobile devices accounted for nearly half of Facebook's third quarter ad revenue as the company blew past Wall Street earnings forecasts. It was the second straight quarter that Facebook beat estimates. Last quarter, Facebook reported that 41% of its ad revenue came from mobile devices.

The number of people using Facebook on their smartphones also soared, Facebook said when it reported earnings after the closing bell on Wednesday.

Pivotal Research Group analyst Brian Wieser said the quarter should tamp down reservations that arose in the run up to Facebook's initial public offering. Facebook went public in May 2012 at $38 a share but then slid amid worries that Facebook would not be able to make money selling ads to users on mobile devices.

"The business is real, it's very durable," Wieser said. "There were a lot of people through 2012 who felt there wasn't a future to the business, which was always a wrong view."

Expectations were already sky high for Facebook with several analysts raising their price targets just before the earnings release in anticipation of another surge in mobile advertising.

Shares jumped as much as 15% in after hours trading before it began to fall below the closing price of $49.01.

Facebook shares have risen threefold over the past year, trading as high as $54.83, after enduring a long slump.

Investors are regaining confidence in social media stocks. Facebook's surge is put a big spotlight on competitor Twitter's initial public offering next week.

Mobile advertising is the key metric for all Internet companies as consumers gravitate to smartphones and tablets and away from desktop computers.

Facebook's mobile revenue rose to 49% of total advertising revenue, up from just 14% in the same quarter a year ago.

Facebook had 874 million monthly mobile active users at the end of the quarter, up 45% year-over-year.

Facebook earned $425 million, or 17 cents a share, in the third quarter. That's up from a loss of $59 million, or 2 cents a share, in the year-ago quarter.

Excluding certain expenses, chiefly related to stock compensation, Facebook earned $621 million, or 25 cents a share, up from $311 million a year ago.

Wall Street had expected the company to post profits of 19 cents a share.

Revenue climbed to $2.02 billion from $1.26 billion. Analysts, on average, were expecting revenue of $1.91 billion.

Facebook's advertising revenue was $1.8 billion, up 66% from a year ago.

The mobile advertising market is booming. Research firm Emarketer estimates the world-wide market will grow 89% to $16.6 billion in 2013. Google will collect the lion's share of those ad dollars, about 53%. Facebook is expected to snag nearly 16%.

Facebook has just begun to experiment with ads on its photo-sharing service Instagram.

"They're doing what they're supposed to do. They're setting expectations low and exceeding them, which is always good to see. I think their revenue growth is going to continue to surprise people, maybe even confound them," said Wedbush Securities analyst Michael Pachter.

"A lot of people were negative about the ability of these guys to monetize mobile. The truth is, they're just killing it. They know what they're doing and they've obviously made it a focus, going from zero five quarters ago to 49% of growing revenue."

But Facebook raised another worry when it acknowledged it may have a challenge in holding the attention of young people. Facebook's chief financial officer said it had seen a decrease in daily usage among younger teens, but added that usage among U.S. teens overall was "stable" during the second and third quarters.

Guynn reported from San Francisco and Chang from Los Angeles

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