Facebook Earnings Highlight Mobile Opportunity

Maybe Facebook knows what it's doing in mobile advertising, after all.

In its earnings call Tuesday, CEO Mark Zuckerberg proclaimed his intention to make Facebook "the best and most ubiquitous mobile platform," giving people the opportunity to share on the go, and called the transition to mobile "the most misunderstood aspect of Facebook today."

"I want to dispel this myth that Facebook can't make money on mobile," he continued. The migration of audiences from desktop Web browsers to mobile devices, particularly smartphones, is challenging for ad-supported websites and applications because the smaller screens leave little room for banner or sidebar ads. However, over the past three months, Facebook got 14% of its advertising revenue from mobile. Facebook first reported mobile ad progress in its first earnings report as a public company, in July, based on inserting ads (or "sponsored stories") into the newsfeed. Then, it said it was getting about $1 million a day in revenue from newsfeed ads. Now, Facebook says that's reached $4 million per day, with $3 million of that coming specifically from ads in the mobile stream.

Facebook stock rose 13% in after-hours trading Tuesday, after closing at $19.50 in New York. Shares are down 49% from their initial public offering in May.

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"We only started mobile monetization in March," Zuckerberg said. "We've become the largest mobile advertising platform in less than eight months." Facebook has also started creating ad products that specifically make sense in a mobile context, such as ads enticing you to install a particular app on your phone. Combined with a new faster, native iOS app and a forthcoming native app for Android, Facebook is strengthening its position in the mobile environment.

Facebook also pointed to the introduction of new products such as the Facebook Ad Exchange (FBX), which allows resellers to market Facebook ad inventory, and the re-launch of Facebook Offers.

Advertising revenue increased 36% year over year to $1.09 billion. Revenue payments and other businesses increased 13% to $176 million. Fees collected from Zynga, Facebook's social games partner, were down 20%, although fees from other partners increased to compensate, according to Facebook.

Facebook COO Sheryl Sandberg said Facebook Offers has particular potential to appeal to local merchants, who essentially use it to offer coupons, and about 30% of offers are being claimed by mobile users.

The company reported income from operations of $377 million, compared with $414 million for the third quarter of 2011. Because of taxes driven by stock-based compensation, Facebook reported a net loss of $59 million, compared with net earnings of $227 million for the third quarter last year. With the effect of stock compensation excluded, the result would instead be considered a $311 million gain, or $0.12 per share, compared to $273 million and $0.12 per share for the same quarter in the prior year.

Follow David F. Carr on Twitter @davidfcarr. The BrainYard is @thebyard and facebook.com/thebyard

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