Until yesterday, Facebook Inc (NASDAQ:FB) had been in the limelight for losing money and disappointing investors time and again. But its third quarter results have changed the scenario, and the company’s stocks have gained more than 23 percent in a single day. It’s the kind of growth investors were expecting after its IPO in May. Now the question is: can a strong quarter really make a big difference for the company?
Well, Facebook Inc (NASDAQ:FB) revenues beat Wall Street estimates by growing 32 percent to $1.26 billion. Income from mobile advertising rose from just $10 million in the second quarter to an astounding $150 million in the third quarter. But the stellar growth in stock prices has more to do with the company’s future prospects than just a strong quarterly performance. Remember that Facebook stocks are still trading far below their IPO price of $38.
Facebook Inc (NASDAQ:FB) has demonstrated that it can monetize on mobile, which has been an area of concern for investors. Additionally, the promising line up of new Facebook products has boosted investor confidence. Wedbush Equity Research has an outperformrating on Facebook Inc (NASDAQ:FB) stock with a 12-month price target of $35. It thinks that revenues from mobile advertising will grow from 14 percent of the total ad revenue in Q3, to 20 percent next year. The new initiatives such as Sponsored Stories, Promoted Posts, Facebook Exchange, Facebook Offers, Mobile Ad Network, and Targeted Ad Initiatives will have positive impacts in future periods. Wedbush says it expects Facebook to generate $3-4 billion from Targeted Ad Revenues alone by 2015.
Bank of America Merrill Lynch sees one more thing in Facebook Inc (NASDAQ:FB). It says that the social networking site is better positioned to monetize the mobile platform than Google Inc (NASDAQ:GOOG) and Yahoo! Inc. (NASDAQ:YHOO). Facebook’s ad formats, ad pricing, and user experience on mobile are better than on the PC. According to Facebook Inc (NASDAQ:FB), mobile users are 20% more likely to access the site on a given day. So, BAML has increased its revenue growth estimate from 29% to 32 % in 2013. BAML has updated its rating from neutral to buy with price target of $31.
However, the stocks may come under temporary pressure due to lock up expirations that will free FB employees to sell their shares after waiting for months.
Now you can see that the stocks rose heavily, but not really because of a strong quarter. It happened because of a promising future, and the strong third quarter is just a glimpse. For the same reason, I told you a few days ago that Facebook Inc (NASDAQ:FB) is a sure shot buy.