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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.
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"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.
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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.
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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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