Facebook (FB) assuaged fears Tuesday that its mobile advertising business was failing.
The social network reported that its third-quarter revenue from mobile ads jumped 14% to $150 million. Wall Street was expecting an increase of 5%. Facebook stock rose sharply after the earnings report, surging as much as 12% in after-hours trading. The rally continued Wednesday morning with the stock up as much as 21%, its biggest gain in 5 months.
Facebook CEO and Co-Founder Mark Zuckerberg assured analysts that the high ad revenue was no fluke.
"I want to dispel this myth that Facebook can't make money on mobile," he said. "We are just getting started."
Facebook's ability to monetize 14% of its 604 million mobile users last quarter was a dramatic change of events for the 8-year-old company. Facebook's second quarter mobile ad revenue totaled less than $50 million and six months ago the company could not earn one dollar from mobile ads.
Sterne Agee analyst Arvind Bhatia estimates that Facebook could soon make $1 billion in revenue from mobile advertising.
"I believe the company has turned the corner," Bhatia said in an interview with The Daily Ticker. "Mobile is very strong."
Bhatia has a buy rating on Facebook stock and a $26 price target. Shares of the social network are off more than 40% from their May 18 IPO high of $42. Over the next few weeks anywhere from 700 million to 1 billion new Facebook shares will flood the market when lock-up restrictions for insiders expire. Bhatia says the additional shares should not scare off investors.
"We've all known about this for a long time" and the "good quarter will help alleviate concerns" about the company's future earnings growth, he notes.
Facebook earned 12 cents a share last quarter, a penny more than Wall Street estimates. Facebook posted a net loss of $59 million or 2 cents a share in the three months ended Sept. 30, down from $227 million in the same quarter last year.
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