Facebook’s double-down on mobile pays off big

Facebook Chief Executive Officer Mark Zuckerberg’s decision last year to bet big on mobile software is paying off, with sales of ads on wireless devices now on track to surpass revenue from desktop computers.

Surging demand for mobile advertising helped profit and revenue top analysts’ estimates in the second quarter. The results sent shares of the world’s most popular social-networking service up 21 percent in extended trading yesterday, leaving them poised for a record one-day gain yesterday.

The results may finally quiet concerns, voiced by analysts and investors since Facebook’s May 2012 initial public offering, that the rising popularity of smart phones and tablets is outpacing its ability to make money selling promotions to mobile users. By letting marketers show messages in the news feed on such devices and shifting development efforts toward applications, Zuckerberg is delivering on his promise of making Facebook a “mobile-first” company, according to Jordan Rohan, an analyst at Stifel Nicolaus in New York.

“There’s latent demand for marketers to spend money on Facebook,” said Rohan, who rates the shares a buy. “The company finally introduced the right set of ad products to facilitate that.”

Revenue rose 53 percent to $1.81 billion in the latest quarter, the company said yesterday. Profit excluding certain items was 19 cents a share. Analysts had projected profit of 14 cents on sales of $1.62 billion on average.

“Finally, the blowout quarter that Facebook bulls have been waiting for,” said Paul Sweeney, an analyst at Bloomberg Industries. “Among many impressive data points, I think investors will focus on the percentage of revenue from mobile of 41 percent, which was well above consensus.”

Facebook, which had priced its IPO at $38 a share, saw its stock slump as low as $17.55 in September and was trading 30 percent below its initial offering price before yesterday’s results. Concern about Facebook’s ability to shift to mobile has weighed on the company’s shares since its $16 billion IPO, the largest technology offering on record.

Even with the decline, the Menlo Park, California-based company traded at 115 times earnings as of yesterday’s close, more expensive than 98 percent of the companies in the Standard & Poor’s 500 Index.

Mobile ads, which made up 30 percent of revenue in the first quarter, will soon account for more than half of advertising dollars, Zuckerberg said on a conference call. The number of mobile users expanded 51 percent to 819 million during the quarter. The total number of Facebook members was 1.15 billion, compared with 1.11 billion in the earlier period.

“This quarter represents a strong validation that we’re effectively navigating the shift to mobile,” David Ebersman, Facebook’s chief financial officer, said in an interview. “All the investments we’ve been making in the business have been paying off.” Bloomberg