Facebook seen at turning point as mobile ads surge

Shares of Facebook surged Thursday after a sharp jump in mobile ad revenues propelled profits and marked what some analysts called a turning point for the social networking giant.

A day after its quarterly earnings report, Facebook shares leapt 29 percent to $34.22 at 1915 GMT, the biggest jump since its public offering in May 2012 as the stock hit its highest level in over a year.

Facebook shares had fallen sharply after the highly anticipated IPO last year and have yet to get back to the offering price of $38. Analysts have spotlighted sluggish mobile ad revenue growth as a major hurdle for the stock.

But the company has aggressively changed its online format to enable it to follow its one billion members onto smartphones or tablets as lifestyles increasingly revolve around accessing the Internet from mobile devices.

Facebook reported net income in the second quarter of $331 million compared with a loss of $157 million in the year-ago period.

Revenue for the quarter that ended June 30 climbed to $1.81 billion, up 53 percent from the same period a year earlier. Facebook said 41 percent of its ad revenues came from mobile, compared with 30 percent in the prior quarter and virtually nothing a year ago.

The gains prompted some leading analysts to employ words like "stunning" to characterize the performance. The most recent reporting period was "an inflection point quarter," said a note from RBC Capital Markets.

"Facebook over the last four quarters has addressed and now likely defeated the biggest overhang issue from its IPO days -- mobile monetization," RBC said.

Still RBC warned investors that the contrast of the second-quarter performance to last year's was the "easiest" comparison to beat. "So don't get too carried away," the analysts said.

Arvind Bhatia at Sterne Agee said the results show that "Facebook's mobile transition has been highly successful," and suggested there is more room for growth.

"We estimate Facebook's market share of online advertising is currently between five and 10 percent only," the analyst said. "We believe Facebook is well positioned to grow its market share significantly."

Jefferies analyst Brian Pitz cited "impressive results that we believe ameliorate key investor concerns."

Pitz also said the report showed that "engagement" by teens is holding up and advertisers are looking more at the social network.

"Importantly, ecommerce companies are increasingly becoming big advertisers on Facebook, setting the company up for a strong holiday," he said.

Facebook last year directly integrated ads into user's newsfeed, whereas previously they had been segregated onto the right side of the screen and not visible on smartphones.

Some observers have questioned whether the aggressive marketing could alienate customers. But Facebook officials said on a conference call that the shift is popular with advertisers and has not so far angered users.

Of Facebook's 1.15 billion monthly users as of June 30, 819 million use a mobile device. Of Facebook 669 million customers who use the site daily, 469 million use a mobile device, according to Facebook.

Since Facebook modified the format in 2012, ads now represent about five percent of the content on a user's newsfeed, company officials said.

Facebook officials said they have been able to raise the "cost per click" when customers pick ads; this contrasts with Google, which troubled investors last week after acknowledging that the cost per click declined.

"Newsfeed ads work," Facebook chief financial officer David Ebersman said on a conference call with analysts.

The Facebook surge comes amid a reporting quarter that has seen some familiar names, including Microsoft and Google, struggle with various challenges associated with the shift from personal computers to mobile technology.