Facebook reported better-than-expected third-quarter earnings
Tuesday, giving investors hope that the company might have found
reported adjusted earnings of 12 cents a share, topping estimates
calling for 11 cents. Revenue came in at $1.3 billion, up 32% from the
same period last year, and slightly ahead of forecasts. The company
swung to a loss of 2 cents a share, following official accounting rules.
But above all, the quarter gave investors some comfort that
Facebook is starting to get meaningful revenue from the increased use of
its service on mobile devices. The company reported getting 14% of
revenue from mobile advertising. Total ad revenue was $1.1 billion and
accounted for 86% of total revenue.
"Facebook beat on the top
line, beat on the bottom line and had a good mix of mobile," says Arvind
Bhatia of Sterne Agee. The quarter "will alleviate concerns."
shares, which rose almost 1% to $19.50 in regular trading despite a
broad market sell-off, rallied more than 10% after hours following the
earnings news. Still, the stock is still down sharply from the $38 at
which it went public in May.
Investors closely parsed the results looking for clues about the company's:
-- Mobile business.
The biggest wildcard has been the company's ability to profit from
mobile users. And investors liked what they saw. The company hauled in
$1.7 million a day on mobile advertising, more than triple the $500,000 a
day last quarter, says Mark Harding of JMP Securities. Many analysts
thought the company would bring in only $50 million from mobile
advertising during the quarter, so the actual $140 million sum was a big
surprise, says Bhatia.
-- Growth trajectory. The company's
revenue growth was encouraging as investors worried that the company
was hitting a wall, says Colin Sebastian of Robert W. Baird. Meanwhile,
Facebook reported 28% higher daily active users of 584 million during
September. Active mobile users increased 61% to 604 million. Facebook
also notched solid gains in advertising pricing, rising 10% per active
user, Harding says. "It's showing the right trajectory," he says.
-- Outlook headed into massive stock lock-up expirations. The
third-quarter results came at a key time with another lock-up period
about to expire, allowing employees to sell shares for the first time.
Investors and employees holding 234 million shares of Facebook will be
allowed to sell those shares for the first time on Monday. On Nov. 14,
an additional 777 million shares will be freed up for sale. The solid
results could encourage employees to hang onto their shares, Bhatia
says. "If you own the stock and see this much growth, and starting to
see positive momentum, maybe you think twice" before selling, he says.
better-than-expected quarter comes after investors have turned sour on
the stock. Shares have fallen more than 40% from the $38 IPO price. But
this report may help reverse the stock's downward spiral, Sebastian
"There was more positive than negative here," Sebastian
says. "The early signals are positive, but it's a quickly evolving