The Q2 earnings released by Facebook have induced a resurgence of investor interest in the social media giant. After the debacle of its IPO last year, Facebook needed a way to revitalize its marketing strategy and energize its revenue stream — it found the solution in its mobile platform. Now with over 1.1 billion users, 700 million of which log in every day, Facebook is at a crossroads and is beginning to traverse the correct path. The new reports have caused me to reexamine my initial perception of the potential profitability of Facebook's brand. I was very skeptical about the site's ability to create value after the IPO, but Facebook's transition to refocus on its mobile platform will be what propels the company's future profitability.
During its IPO in May 2012, Facebook stocks were sold at $38, a mark it has yet to reach since. Investors worried that the company could not adapt to the changing mobile environment. "One of the biggest overhangs from their IPO is that this company had been blindsided by mobile," said Mark Mahaney, an analyst with RBC Capital Markets. In September 2012, the stock reached an all time low of $17.55/share.
On Wednesday, this all changed. According to the reports, Facebook's mobile revenue increased by 76% to $656 million, which represents 41% of the company's total earnings — last year mobile revenue was 0% of the company's reported earnings. Facebook's revenue skyrocketed 53%, to $1.81 billion last quarter, above the average Wall Street prediction. These results excited investors, raising the stock price to $30.94 in after-hours trading. This morning, the stock opened at $33.5 and has continued to rise all day. The exciting report made it clear that CEO Mark Zuckerberg's decision to shift a great deal of the focus to advertising on mobile platforms has paid off. "They caught up. Instead of being behind the curve on mobile, they are ahead of the curve," Mahaney affirmed.
It is evident that Facebook's recent success relied heavily on proving to advertisers that Facebook mobile was the best platform for their promotions. On a phone call with analysts Zuckerberg said, "soon [Facebook] will have more revenue on mobile than desktop." In your news feed, 1 out of every 20 items is an advertisement, and advertisers are eager to grow their presence on the site. Though Facebook's CFO, David Ebersman, said he expects ads to grow, Zuckerberg assured analysts that the company is constantly working to enhance the relevance and structure of its ads as to not deter users from using Facebook. Zuckerberg also said Facebook is looking for the best ways to implement video ads, especially since they introduced the video feature on Instagram.
This report marked a significant shift in Facebook's approach to a growing mobile market. In part, this adjustment has been made possible by the overwhelming success of Apple's iPhone and Google Android devices. There is no question in my mind that mobile is the future. Numerous reports display this fact. MarketingProfs reported that since Q1 2012, web traffic from mobile devices has risen 78% in one year. "In 2012, we connected over a billion people and became a mobile company," said Zuckerberg during fourth quarter statements last year.
If Facebook maintains a strong ad presence on mobile and continues to work with advertisers to improve the applicability of what they post, I have no doubt that the stock will continue to rise throughout the year. This report has undoubtedly changed my position on the company. Not just because it showed promising increases in revenue but because it signaled a crucial shift the company's approach to the mobile market and its willingness to adapt to these conditions.