With a big earnings surprise, not all sins are forgiven?but Facebook Inc. is drawing some investors back.
On Wednesday, Facebook easily beat second-quarter profit and sale expectations, sending its shares up 17% in late trading. The company swung to a profit as its sales rose 53% to $1.81 billion from a year ago, boosted by a surge in mobile and local ad sales. The company booked a profit of $333 million, or 13 cents a share.
Facebook is getting traction in its quest to become what founder and CEO Mark Zuckerberg has called, a "mobile best" company. Since going public last May, Facebook's stock has floundered, amid persistent concerns the company wouldn't be able to offset the attrition in its desktop ad sales business and thrive in a mobile world.
Facebook shares jumped nearly 20% in after-hours trading as Facebook surprised investors with big gains in revenue, earnings and active users for the second quarter on Wednesday. (Photo: Getty Images)
Facebook's mobile-ad business rose 75% from the prior three months, to $656 million in sales, and now makes up 41% of its advertising sales. In the first quarter, that percentage was 30%.
"The investments we've been making over the past year or longer are starting to pay off," said David Ebersman, Facebook's chief financial officer, in an interview on Wednesday.
Even with the rally Wednesday, Facebook's share are still well below their initial public offering price of $38. In after-hours trading on Wednesday, the shares were up $4.60 to $31.11.
Much of Facebook's growth in the quarter came from its local efforts. The social network surpassed 1 million active advertisers, propelled by gains in local business advertising. The emphasis on local indicates that Facebook's sales force is ramping up efforts to woo small businesses, which will be critical, as it tries to position its mobile application as a go-to service to find local businesses.
"The revenue beat is huge," said Michael Pachter, a Wedbush Securities analyst. "They are clearly doing a great job with local ad sales."
Since the IPO, investors have been fixated on Facebook's mobile business. In recent quarters, Facebook has released a flurry of new mobile-ad products and targeting tools for advertisers. For instance, mobile app install ads?or ads on Facebook that promote the download of third party apps?were one of the positive drivers of Facebook's results, "growing very rapidly," during the period, said operating chief Sheryl Sandberg.
The product, which was rolled out last fall, is gaining in popularity as Facebook tries to assert itself as the app discovery portal for mobile devices. App discovery is a particularly vexing problem for developers, who are desperately trying to stand out in the crowded sea of apps.
For some aspects of Facebook's mobile ambitions, however, the second quarter brought mixed results.
During the period, Facebook debuted video on Instagram and released Home, an application for Google Inc. Android phones. The heavily touted Home app, which was promoted with a slick television ad, has fallen short of expectations amid complaints from consumers and relatively modest download numbers.
Mr. Zuckerberg described Home as a "new kind" of product and said it would "take longer to develop."
And Facebook is still spending heavily to ramp up its mobile business. The company's cost and expenses came in at $1.25 billion in the second quarter, less than a year ago, when it spent $1.93 billion. But last year's results were bogged down by expenses related to compensating its employees with stock tied to its IPO.
There were no obvious signs of fatigue with Facebook among users in the results: Facebook's count of daily active users rose 27% from the year ago period to 699 million. The number of monthly active users jumped 21% over the period to 1.16 billion.
On the earnings call, Mr. Zuckerberg said the company remained popular among teens, a demographic analysts have frequently cited as a weakness for Facebook. He said teen use of the site "has been steady over the past year and a half."
Despite strides on mobile, Facebook still only accounts for a small slice of the greater digital advertising market. It is just 4.1% of the $104 billion market, according to data from eMarketer.
On the conference call, Facebook tried to dampen expectations moving forward, warning that the next quarters would face tougher comparisons, since ads in its main news feed channel only began to truly impact revenue in the back half of 2012.
"We know we still have a lot of hard work to do," Ms. Sandberg said on the earnings call.
Write to Evelyn M. Rusli at evelyn.rusli@wsj.com
A version of this article appeared July 25, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Facebook's Revenue Surprises.
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