Computerworld

Zuckerberg dazzles Wall Street with Q3 mobile progress

Facebook may have turned a corner in its efforts to convince skeptical investors that it has a growth strategy

Facebook, which had been in the doghouse with Wall Street since it went public, wowed investors with its third-quarter report on Tuesday, in particular with its improvements and early results in the crucial mobile market.

Facebook executives, led by CEO Mark Zuckerberg, spoke at length during the conference call with analysts about what they consider a big opportunity to grow mobile advertising revenue and user engagement.

"I want to dispel this myth that Facebook can't make money on mobile," Zuckerberg said.

Facebook's stock, whose performance has been a disappointment since its IPO on May 18, surged in after-hours trading, and was up around 13 percent at the time of this report.

It had closed at $19.50 -- a little over half of its $38 IPO price -- on the Nasdaq exchange on Tuesday, before Facebook released its quarterly results.

Mobile ad sales accounted for 14 percent, or about $150 million, of the quarter's total revenue, and the growth is accelerating. Mobile monthly active users rose 61 percent to 604 million as of Sept. 30, the last day of the quarter, out of a total of 1.01 billion monthly active users, up 26 percent.

Further, Facebook has found that mobile users are more engaged than those who access Facebook from computers, and that mobile ads are particularly effective because they are integrated more organically into the Facebook experience.

The perception that Facebook lacked compelling mobile services for its users and advertisers had been at the heart of Wall Street's lack of enthusiasm for the company.

Zuckerberg said he and his team heard the message loud and clear, not just from investors but also users, and got to work to try to improve. "Over the past year, a lot of people gave us feedback that our mobile apps were too slow," he said.

In September he had acknowledged at a public appearance that Facebook had put too much emphasis on HTML5 in an attempt to make the site broadly available via mobile browsers in a variety of platforms, instead of focusing on OS-specific mobile applications.

On Tuesday, he rattled off a list of recent mobile improvements, including revamping its iOS application and releasing new development tools for iOS and Android. It also closed its acquisition of the popular mobile photo-sharing app Instagram.

Facebook is also working on upgrading its Android application. The stand-alone Facebook Messenger messaging mobile application was upgraded for iOS and Android.

Development groups at the company have been put in charge of building revenue-generating elements for their products, which is already yielding good results, according to Zuckerberg.

Of course, it's still early days in Facebook's mobile push, and company executives acknowledged during the call that they are closely monitoring how this increase in ads is received by mobile users.

Facebook overall results topped the consensus expectations of financial analysts polled by Thomson Reuters.

Revenue rose 32 percent to US$1.26 billion, compared with $954 million in the third quarter last year, and exceeded the $1.23 billion that financial analysts had expected.

Its net loss was $59 million, or $0.02 per share, compared to net income of $227 million, or $0.10 per share in the third quarter last year. On a pro forma basis, excluding items such as stock-based compensation, Facebook reported earnings of $0.12 per share, beating expectations by a penny.

Ad sales during the quarter accounted for 86 percent of revenue -- the rest came from payments and other fees -- and Zuckerberg highlighted new ad products like Facebook Exchange and Custom Audiences aimed at improving targeting to make them more effective.

Facebook also made a move in the e-commerce space during the quarter with the launch of its Gifts service, which encourages people to buy presents for friends.

Zuckerberg reiterated the company's commitment to its application platform. Facebook wants to be the platform of choice for all third-party developers who want to add social networking capabilities to their applications and sites, he said.

Regarding games, Zuckerberg said that while revenue from embattled gaming developer Zynga dropped 20 percent during the quarter, payments revenue from other game developers grew collectively by 40 percent.

Costs and expenses rose 64 percent to $885 million, though excluding stock-based compensation and related payroll tax expenses, costs and expenses were up 57 percent, to $737 million.

Juan Carlos Perez covers enterprise communication/collaboration suites, operating systems, browsers and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.