Facebook shares leap by 28pc on foot of its mobile advertising
Facebook shares opened 28pc higher yesterday after the company reported a huge jump in mobile advertising revenue, and analysts pointed to further growth from new advertising on Instagram and 15-second videos.
While still short of their IPO price of $38, the shares hit $34 – a price not seen since their second day of trading in May last year. At least 16 brokerages raised their price targets by as much as $9 per share – in sharp contrast to a string of earlier downgrades amid fears it would struggle to make money from mobile advertising.
Revenue from smartphones and tablets made up almost half of total advertising revenue in the second quarter. Instagram, Facebook's photo site with 130 million users, also looks ripe for the introduction of advertising and could be one of Facebook's biggest revenue drivers.
Analysts at Morgan Stanley expect video ads to boost ad revenue by over 10pc. Facebook is widely expected to launch the service in the fourth quarter.
The company has scrambled to address one of the main concerns weighing on the stock since its IPO, by developing mobile ads better suited to small smartphone screens that users increasingly use to access the service.
A year ago it had almost no mobile advertising. In the second quarter this made up 41pc of total advertising, jumping from 30pc in the first quarter. Total revenue jumped by half from a year earlier.
"Facebook has discovered the formula to begin significantly extracting value from its 1.16 billion global users," said JMP Securities analyst Ronald Josey. He raised his rating on the stock to "market outperform" from "market perform" and said the company was increasingly becoming a "must buy" for advertisers.