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Strong mobile traction driving enthusiasm for Facebook shares
(Updated with information from Doug Anmuth, closing stock price)
After slightly beating Wall Street expectations in its third quarter results Tuesday, Facebook's stock has taken off.
The report sent the stock up 13% in after hours trading on Tuesday, and the stock was up nearly 28% in pre-market trading Wednesday morning.
As of this writing, the stock is up 23.09%, trading at $24 a share, its highest point since July.
The stock closed Wednesday up 19.13%, at $23.23. It is currently up 0.86% in after hours trading, at $23.43.
Facebook shares had been slowly drifting lower this last quarter ever since the social network posted in-line second-quarter results that sent shares tumbling, but the company's third quarter success could be a turning point.
JP Morgan analyst Doug Anmuth believes it is strong mobile traction driving enthusiasm for Facebook shares.
"Facebook reported strong 3Q12 results led by re-acceleration in Advertising revenue as Sponsored Stories/News Feed ads gained significant traction, especially on mobile devices. We believe 3Q results set the stage for material mobile advertising adoption in 2013, particularly as marketers go through their annual budgeting process for the new year, which we expect will increasingly include Facebook," Anmuth wrote.
Ad revenue was up 36% in the quarter, and 14% of that came from mobile, where engagement has been high, and mobile users are 75% more likely to use Facebook on any given day compared to desktop users.
These gains in mobile, says Anmuth, offset declines in desktop ad revenue. Desktop ad revenue growth was up 17% year to year, but down 5% quarter-to-quarter. Even its year to year growth was down from 37% in the first quarter and 26% in the second quarter.
"Even with very strong mobile contribution, the desktop ad slowdown will likely remain a key focus for investors. However, some desktop advertising is simply shifting to mobile, and we believe in many cases Facebook has discretion as to where a marketer’s ads actually run. Given higher engagement and recall rates on mobile as noted above, we would expect ad dollars to continue shifting to mobile and for Q/Q desktop declines to continue," Anmuth said.
Anmuth's mobile ad estimates for 2012 and 2013 are now $537 million and $2.02 billion, up significantly from his previous estimates of $200 million and $900 million.
Facebook posted revenue of $1.262 billion for the quarter, higher than Wall Street's estimates of $1.23 billion. Adjusted earnings per share came in at 12 cents in the third quarter, compared with the 11 cents a share that analysts were expecting.
The social network saw its monthly active users increase by 26% year to year to 1.01 billion, and saw its daily active users increase 28% from the previous year to 584 million.
Mobile MAUs were 604 million as of the end of September, an increase of 61% year-to-year.
"As proud as I am that a billion people use Facebook each month, I'm also really happy that over 600 million people now share and connect on Facebook every month using mobile devices,” said Mark Zuckerberg, Facebook founder and CEO said in a statement. "People who use our mobile products are more engaged, and we believe we can increase engagement even further as we continue to introduce new products and improve our platform. At the same time, we are deeply integrating monetization into our product teams in order to build a stronger, more valuable company."
Facebook’s revenue was up 32% year to year, from $954 million to $1.26 billion. If not for foreign exchange rates, Facebook notes, the increase would have been 38%.
Advertising revenue was $1.09 billion, or 86% of total revenue. It increased 36% from the same quarter in 2011. Once again, if not for foreign exchange rates, it would have been an increase of 43%.
Revenue from payments and fees took in $176 million. While this represents a 13% increase year-to-year, it also was a 9% decrease quarter to quarter.
GAAP income before provision for income taxes was $372 million, but after the provision, Facebook saw a net loss of $59 million, compared to net income of $227 million for the third quarter of 2011.
Non-GAAP net income was $311 million or $0.12 per share, compared to $273 million and $0.12 per share for the same quarter in the prior year.
Facebook's vision and strategy
Following the release of Facebook's third-quarter results, Mark Zuckerberg got on a conference call to talk about Facebook's vision and strategy going forward.
“Our mission is to make the world more open and connected. We do this by giving people the power to share whatever they want and be connected to whoever they want, no matter where they are," Zuckerberg said and he outlined three pillars of this strategy:
1. To build the best and most ubiquitous mobile product
2. To build a platform where every new app that is created can be social and enable people to share.
3. To build strong monetization and economic engine that will build Facebook into one of the world’s most valuable companies.
(Image source: https://www.usscusk.com/)
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