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Last updated: October 30, 2013 10:38 pm
Shares in Facebook initially jumped as much as 14 per cent in after-hours trading on Wednesday after the company said mobile advertising accounted for almost half of the social network’s ad revenue.
But the stock rapidly lost all of its gains after the company said the number of teens on the site was stable but it saw a decrease among younger teen users, and warned that it would not be increasing adverts in the newsfeed at the same rate in the future.
The social networking site beat earnings forecasts by about 30 per cent in the third quarter as advertisers followed users on to mobile and the number of people using Facebook on smartphones soared.
Mark Zuckerberg, Facebook founder and chief executive, said better targeting of users meant the average user now clicked on an advert once a week.
“This is a great sign that people are finding ads useful,” he said, adding there was still “a lot of room for improvement”.
More marketers, big and small, are using Facebook, with more adverts appearing in the mobile feed and more adverts in the newsfeed, rather than the right hand column of the site, and engagement has improved.
Earnings per share more than doubled to 25 cents year-on-year, on a diluted basis, higher than the consensus forecast of 19 cents. The company generated $2bn in revenue, beating the average analyst estimate of $1.9bn.
GAAP net income for the quarter was $425m, compared with a net loss of $59m for the same period last year.
Expectations were already high after a near 40 per cent rise in Facebook’s share price during the quarter, and several analysts had raised their price targets in anticipation of strong growth in mobile advertising.
Investors embraced the stock in recent months after the company demonstrated growth in mobile advertising, which had weighed on the shares since last year’s initial public offering.
Several analysts had raised their price targets for the stock on the strength of the mobile advertising growth, the expansion of video ads and Instagram.
But some analysts have also been concerned that Facebook was going out of fashion with teenagers, who are more keen on rivals such as Twitter and Snapchat, as well as Facebook-owned Instagram.
David Ebersman, Facebook’s chief financial officer, said there was a lack of reliable data about the number of teens on the site, as they were less likely to be honest about their age.
Attempting to assuage concerns about the lack of growth among teen users, he said: “We remain close to fully penetrated among teens in the US.”
However, he also warned that growth in the number of adverts in the newsfeed, which had been a “meaningful driver of revenue”, would not continue at the same rate in the future.
Mobile revenue rose in the third quarter to reach 49 per cent of total advertising revenue – up from just 14 per cent in the same quarter last year.
Mobile monthly active users were 45 per cent higher than the year before at 874m, and more than 500m people used Facebook on their mobile devices each day on average during September.
Total monthly active users rose 18 per cent year-on-year to 1.2bn, and daily active users rose 25 per cent in the same time period to 728m. Average revenue per user rose to $1.72.
Facebook did not give guidance for the full year but analysts had forecast 2013 earnings per share of 73 cents on total annual revenue of $7.4bn.
After the initial surge of as much as 14 per cent, the stock was down almost 3 per cent at $47.67 after the conference call. This compares with an IPO price of $38 in May last year and a subsequent low of under $18 in September last year.
Additional reporting by Arash Massoudi
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