Facebook (FB) Stock Boost: Earnings Report Gives Hope For Its Mobile Business

Facebook (FB) reported quarterly earnings after the market closed on Tuesday. The company recorded a loss of $59 million versus a profit of $227 million for the same period a year ago, but its results were dragged down by “the cost of paying employees in stock.”

FB beat estimates by analysts for revenues as they increased to $1.25 billion, compared to predicted revenues of $1.23 billion. Analysts expected net income of 11 cents per share, but the company posted 12 cents, using a non-standard accounting method that excludes the cost of stock compensation (this method is a more appropriate measurement of operating earnings).

FB has been plagued by skepticism relating to its mobile business. The highlight of this earnings report was the progress in this area. The company indicated that it made $153 million  in sales from mobile advertisements; this business did not exist at FB seven months ago.

Mark Zuckerberg, CEO of FB, said, “I think our opportunity on mobile is the most misunderstood aspect of Facebook today.” Currently, the company has 604 million mobile users (out of 1 billion total users). Zuckerberg said he expects further increases in FBs mobile business.

The company began to roll out ads in March through a program, which inserts paid marketer messages into the home screen of its mobile apps. This plus a few other initiatives enable mobile ads to account for 14% of the company’s advertising income.

FB’s problem, along with other Internet companies, is that the small screen of a cellphone “poses design challenges” for where and how to place ads. Additionally, advertisers are still trying to assess the efficacy of digital ads in general, and have been slow to advertise on mobiles. Coincidentally, Google sold 33% more ads in their latest quarter, but mobile ads were priced lower than Web ads. A major issue facing FB and others is whether they can keep “jamming ads on a page without upsetting ... users.”

Stock redemption by insiders is an overhang on FB stock. Many analysts believe that until these sales are completed, as lock-up periods expire, investment in FB is more risky. The company has lost nearly 50% of its value since its IPO.

Overall, FB results were encouraging. In the aftermarket, FB stock performed very well even though the overall market tanked during normal trading hours.

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Sal Bommarito

I spend most of my time writing a screenplay based on three of my published novels.

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