Facebook Rises as Mobile Push Fuels Sales to Top Estimates

Jan 30, 2014 1:15 pm ET

(Updates with Zuckerberg wealth in sixth paragraph.)

Jan. 30 (Bloomberg) -- Facebook Inc. reached a key milestone last quarter when more than half of its advertising revenue came from mobile devices, sending shares up today to an intraday record.

The stock rose as much as 17 percent and was at $61.90 as of 1:05 p.m. in New York. The surge followed results in which revenue rose 63 percent to $2.59 billion and profit excluding some items was 31 cents a share, the Menlo Park, California- based social network said in a statement yesterday. Analysts on average had projected sales of $2.35 billion and profit of 27 cents, according to estimates compiled by Bloomberg.

Chief Executive Officer Mark Zuckerberg, who started Facebook a decade ago and turned it into world’s largest social network, spent the last year adding more ways for advertisers to reach consumers. Users are spending more time on wireless devices, with mobile promotions generating $1.25 billion in the latest quarter and accounting for 53 percent of ad sales, up from 49 percent in the prior period.

“Mobile is so key for them,” said Laurence Balter, an analyst at Oracle Investment Research who has a hold rating on the stock. “It’s going to be a big battle between Facebook and Twitter, and it’s Facebook’s game to lose.”

Net income rose more than eightfold to $523 million, or 20 cents a share, from $64 million, or 3 cents, a year earlier.

Today’s stock gains are also boosting the wealth of Facebook executives. Zuckerberg’s net worth rose $3.6 billion and Chief Operating Officer Sheryl Sandberg’s increased about $100 million as of 11:45 a.m. in New York, according to the Bloomberg Billionaires Index.

Ad Effectiveness

As marketers shift spending to social-media services, Facebook and Twitter Inc. are set to expand their share of the digital-ad market, according to EMarketer Inc. By 2015, Facebook will grab an estimated 9 percent, up from 5.9 percent in 2012, while Twitter may take 2.2 percent, up from 0.6 percent, the researcher said last month. Twitter reports its first earnings as a public company on Feb. 5.

“The investments we’ve made to improve our mobile products are paying off,” David Ebersman, Facebook’s chief financial officer, said in an interview. “We still feel like we’re really early and very much in investment mode in terms of what we’re trying to build here.”

Even with more digital-ad spending anticipated, Facebook has been limiting the number of ads shown in a member’s main stream of messages, known as the News Feed, to avoid alienating users. That pressures the company to increase the effectiveness of their promotions and charge more for them, according to Robert Peck, an analyst at SunTrust Robinson Humphrey Inc.

10th Anniversary

Facebook said it would seek to boost the quality, or relevance, of advertisements rather than quantity, which in turn would let the company charge more for promotions. Some of that’s already happening, Ebersman said, with the average effective price of ads up 92 percent compared with the prior year.

For many users, Facebook is no longer a shiny new service. The company next week will celebrate 10 years since Chief Executive Officer Mark Zuckerberg founded the social network in a Harvard University dorm room. The company had 1.23 billion monthly active users in December -- a 16 percent increase from the prior year -- with 945 million of them on mobile phones.

Teen Usage

Facebook has said that younger teens aren’t using its website as much as they used to. The company last year offered $3 billion to acquire Snapchat Inc., an application popular with teens for sending annotated photos that disappear, which the startup turned down, a person familiar with the matter has said.

“If Facebook isn’t a teen product, then the teens are using Instagram, which is also owned by Facebook, so I think the fear is a little exaggerated,” said Eric Steiman, who owns Facebook in a portfolio of $5.5 million at Covestor Ltd. “The number of people on the platform is truly remarkable.”

The company said it had “no new data to report” on teen engagement.

Facebook sold $3.85 billion of shares in a secondary offering last month -- its first share sale since going public - - as the stock more than doubled in 2013. The company also was included in the Standard & Poor’s 500 Index, an event that triggered demand from index funds and other institutions to own the stock.

--Editors: Reed Stevenson, Jillian Ward