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Facebook makes another loss, highlights mobile ad growth

UPDATE: Oct 25: Facebook shares [NAS:FB] jumped 19.13% today as investors reacted to yesterday's numbers - in which the social network posted another loss, but registered strong growth in mobile ad revenue.

The rebound is relative. The stock closed at $US23.22 - still some distance from its May IPO at $US38.

But, crucially, the result was accompanied by a wave of analyst upgrades from neutral to buy. It was the first time since the social network's IPO that analysts had moved en masse into the buy camp.

There was still a note of caution, however.

“With hundreds of millions of shares locked up until next week, many of them likely to be sold into the market, there was always significant concern that the lock-up expiration would lead to a material decline in the stock if new investors did not arrive to purchase those shares,” wrote analyst Brian Wieser of Pivotal Research Group to clients last night. Regardless, Mr Wiser upped his price target from $US28 to $US30.

CEO Mark Zuckerberg also drew praise for the way he handled a results conference call with analysts and media.

"He may not have shed his hoodie for an Hermès tie, but Mr. Zuckerberg seemed to suggest that he understands what it means to lead a public company," noted the New York Times.


Facebook makes another loss, highlights mobile ad growth

Oct 24: Facebook has reported a $US56 million third-quarter loss, against a $US227 million net profit in the year-ago period.

Quarterly revenue increased 32% to $US1.26 billion, ahead of analysts' expectations.

The social network's shares [NAS:FB] jumped 12% in after hours trading as the result was released, but are still trading at half their May IPO value (see chart).

On a conference call, chief executive Mark Zuckerberg said, “I want to dispel this myth that Facebook can’t make money on mobile."

Mobile revenue had increased from zero last year (when Facebook had no mobile ads) to $US153 million, or 14% of Facebook's revenue.

Facebook introduced mobile ads seven months ago.

So far the making money part has proved elusive.

The social network has lost money in the past two quarters 

Facebook Nasdaq performance since its May IPO. S&P Capital IQ. Click to zoom.

In its second quarter, Facebook lost $US157 million. The loss was blamed on employee stock option costs associated with its IPO.

Mr Zuckerberg said 604 million of Facebook's billion-odd active users access the site via a mobile at some point.

Google has also talked up growth in mobile advertising, which it says will bring in $US8 billion revenue over the year ahead.

On Friday, Google reported third-quarter profit of $US2.18 billion, down from the year-ago period's $US2.78 billion, on revenue that improved to $US11.9 billion.

Analysts blamed the profit slowdown, in part, on the growing number of Google ads served via mobile. Ads served to smartphones and tablets are yielding less revenue that those served to PCs and laptops.

Facebook continues to pile on users, but revenue growth is slowing and over the past two quarters it has made $US157m and $US56m losses. Click to zoom.

Comments and questions
6

Well, Facebook still has a long way to go to return to its inflated IPO price. So let's not get ahead of ourselves... The online advertising marketplace is set to get very busy next year - providing FB with lots of competition.

Test comment

Facebook needs to monetarise advertising revenues, even if the net worth of online advertising is evaporating rapidly... personally I wouldn't touch Facebook shares with a Geiger counter

There is enough advertising already that is putting people off internet sites, I am getting fed up with the constant cr*p being shared and changes being made so we don't have control over what we see or look at.
Facebook use to be about the people but now it seems its about making money, so how long untill there is another real site available that people can use in safety and know that their personal lives are not being shared else where.

This is a great stock to get short on after unjustified peaks and rises not supported by the companies long term fundamentals.

I would sooner invest in apartments in Wellington than buy facebook shares, and I wouldn't touch the former.