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Facebook shares surge as mobile ads click

A portrait of the Facebook logo in Ventura, California December 21, 2013. REUTERS/Eric Thayer
A portrait of the Facebook logo in Ventura, California December 21, 2013. REUTERS/Eric Thayer

By Supantha Mukherjee

(Reuters) - Facebook Inc's shares rose as much as 17 percent to a life-high after the company's resounding revenue growth underscored CEO Mark Zuckerberg's success in selling ad space on the social network's mobile app.

At least 32 brokerages raised their price targets on Facebook's shares, which touched a high of $62.50 in midday trading on Thursday.

If the gains hold to close, this would be the largest single-day rise in Facebook's stock since July 2013. The company would have added about $20 billion to its market capitalization of $136 billion, putting it among the top 20 in the S&P 500 index <.SPX>.

The highest price target among the 32 brokerages was $82, which would value the world's largest social network at more than $200 billion.

Facebook's fourth-quarter revenue rose to $2.585 billion from $1.585 billion in the year-ago period, beating analysts' average expectation of $2.33 billion.

"After disappointing earnings from large-cap internet stocks like eBay and Yahoo, it was refreshing to see FB crush Q4 consensus estimates, with accelerating trends in its core advertising business," CRT Capital analyst Neil Doshi wrote.

Facebook said on Wednesday revenue from mobile ads represented 53 percent of its total fourth-quarter advertising revenue, up from 49 percent in the third quarter.

While the total number of ad impressions on Facebook declined 8 percent, some analysts attributed that to the company's shift to mobile and focused instead on the near-doubling of ad pricing in the last year.

Macquarie (USA) Equities Research analyst Ben Schachter said Facebook had focused on improving the quality and relevance of advertisements, rather than boosting ad load, in order to drive revenue growth.

Facebook's latest newsfeed ads, which inject paid marketing messages straight into a user's stream of news and content, are ideally suited for mobile screens.

"We expect several more quarters ahead of expanding newsfeed ad pricing, and also suspect the ad model on Facebook will continue to evolve rapidly, leaving room for future positive surprises," Canaccord Genuity Michael Graham wrote.

Facebook and rival Google Inc have been looking for ways to generate more revenue by harnessing the mobile platform, as more and more users rely on smartphones to access the Internet.

Deutsche Bank estimated 4 billion people would be accessing the Internet on smartphones in 2017, with spending on global mobile advertisement set to reach $70 billion by the same year.

GROWTH ENGINE

Facebook, which completes a decade in business next week, ended 2013 with 1.23 billion monthly active users.

Analysts identified the company's new photo-sharing service, Instagram, as well as a new video ad format and its social search feature, dubbed as graph search, as the next big areas of growth for Facebook.

Facebook launched its first ads for Instagram during the quarter just ended, and has also started testing video ads with brand marketers.

"We continue to see two major catalysts in Instagram and video ads, which could be FB's next billion-dollar business," Jefferies analysts wrote in a note.

Wall Street has been counting on video ads to open up a potentially lucrative market as Facebook tries to sustain its rapid growth. This market is considered crucial for Facebook's market valuation, and poses a potential long-term threat to traditional TV networks.

Zuckerberg has enlisted Samsung Electronics Co Ltd <005930.KS>, Qualcomm Inc and other technology companies to help him in a project aimed at making Internet access affordable for people not already online.

One area of concern to Facebook has been that teenage users might be drifting to new messaging services, such as Snapchat and WhatsApp.

After spooking some investors in October by saying it had noticed a decrease in daily users among younger teens, Facebook did not disclose teen usage data for the fourth quarter.

"The company's Messenger product grew users 70 percent in the last three months and we think this could potentially help re-engage teens over time," JPMorgan analyst Doug Anmuth said.

(Additional reporting by Chandni Doulatramani; Editing by Robin Paxton and Saumyadeb Chakrabarty)

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