Mobile Mojo: Facebook Tops $38 as Social Stock Finally Hits IPO Price

Facebook shares have soared on surprisingly strong mobile ad revenue

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Robert Galbraith / REUTERS

Sixteen months after its Wall Street debut debacle, social networking juggernaut Facebook breached its own $38 IPO price Wednesday, in a noteworthy accomplishment for the Menlo Park, Calif.-based Internet titan. Last week, Facebook delivered a summer surprise to investors by reporting very strong earnings results that demonstrated impressive progress in the mobile space.

Facebook flirted with the psychologically important $38 threshold on Tuesday, but finally crossed the line Wednesday, reaching $38.31, before settling at $36.86 Wednesday evening. Facebook’s strong sales numbers propelled company shares up by as much as 20% last week, and they’ve been going up ever since. Facebook shares have increased by more than 50% over the last month.

“There’s a perception that Facebook has reached an inflection point on mobile revenue,” Scott Kessler, head of technology research at S&P Capital IQ, told TIME Wednesday. “Facebook investors used to look at the mobile space as a risk, but now they’re starting to see it as an opportunity.”

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The tech industry’s mobile shift is being driven by explosive growth in the smartphone market. Users are increasingly accessing Internet services like Facebook, Google, and Twitter on their smartphones, including Apple’s iPhone and Google’s Android devices.

Last quarter, 41% of Facebook’s revenue came from mobile devices, a sharp increase from 30% during the previous three months and 23% the quarter before that. These numbers represent a major shift in a short period of time, because Facebook had zero mobile revenue as recently as the first quarter of 2012. The firm’s push into mobile advertising is well-timed, because late last year the number of daily Facebook users on mobile devices finally surpassed the number of users who access the site on desktop computers.

“Facebook revenue increased by 53% last quarter, which was much better than Wall Street expected, so I think that caught people by surprise,” said Kessler. “The question now is where the company goes next, and it looks like they’re focusing on video.” According to Bloomberg, Facebook is developing plans to sell TV-style advertising for as much as $2.5 million a day.

Last quarter, Facebook’s revenue increased to $1.81 billion, and the social networking giant earned $333 million in profit, reversing a net loss of $157 million. In the most important metric, Facebook’s mobile ad revenue increased by 76% to $656 million compared to the same period a year ago.

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Kessler pointed out that Facebook may be somewhat underweight in large investor portfolios relative to other big tech companies. According to S&P Capital IQ research, institutional investors like hedge funds, mutual funds, big Wall Street banks and pension funds own 36% of Facebook’s outstanding shares. That’s compared to 71% for Google and 65% for Apple. Kessler added that improving global macroeconomic trends could also be driving bullish sentiment on Facebook stock.

Facebook now boasts an astounding 1.15 billion users worldwide, including 700 million who apparently log on to the site on a daily basis. As Facebook tries to capitalize on the explosive growth of smartphones like Apple’s iPhone and Google’s Android devices, mobile ad revenue has become the most important consumer Internet metric to watch.

Facebook is still dealing with the lingering fallout from last year’s controversial IPO, which raised $16 billion for the company. After going public at $38 per share, Facebook’s stock price plunged to $20, prompting anger and lawsuits from investors who felt they were duped. Between trading glitches on the NASDAQ exchange, accusations of “selective disclosure“ against Facebook’s bankers, and an offering level — $38 per share — that appeared way too high, the IPO turned into a major embarrassment.

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