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Facebook Inc (FB) Mobile Ads Turn Out To Be A Game Changer

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Facebook Inc (NASDAQ:FB) posted strong second quarter results with revenue of $1,813 million and pro forma earnings per share (EPS) of $0.19, both beating analyst estimates of $1,620 million and $0.14 respectively. Analysts Ralph Schackart and Ryan Domyancic from William Blair believe that the stock could surge “to upper $30s or low $40s” over the next 12 months on continued CPM lift and multiple expansions.Facebook Inc (FB) Mobile Ads Turn Out To Be A Game Changer

 Mobile ad revenues a game changer for Facebook

Advertising revenue for the quarter came in at $1,599 million more than the average estimate of $1,393 million. Number of ads delivered increased 43 percent and pricing increased 13 percent. Pricing in North America rose around 40 percent year over year and ads served increased 6 percent year over year. According to the analysts’ report, news feed and ad format were significant drivers for price increases.

According to the report from William Blair, Facebook Inc (NASDAQ:FB) is reaping revenue from mobile monetization. During the recentquarter, around 41 percent of advertising revenue was contributed from mobile advertising products, which totaled to $656 over estimated $455 million.

Why did Facebook pay so much for Parse?

In May, Facebook has given two and a half million shares of Class A stock to Parse, which offers tools and services to mobile operators. The stock was worth $67 million at that time, which is more than a quarter of Facebook’s $221 million in M&A expenditures in the first half of 2013. Also, the final amount may have been more as the $67 million figure does not include any cash or retention payouts. The question that arises here is why Facebook Inc (NASDAQ:FB) paid so much for a start-up with 21 employees.

The answer is provided by a report from AllThingsD by Mike Isaac. Facebook Inc (NASDAQ:FB), which has a sketchy history with developers due to guidelines for third-party apps, certainly needs good content from its platform. For good content, the social networker definitely wants to get on developers’ good sides. So, Parse with its tools and services can help developers to create better apps suitable for multiple platforms.

Some concerns

 Analysts noted that revenue from desktop came in low at $943 million, which is a decline of 5 percent from the corresponding quarter of 2012.

There was a hike of 60.5 percent compared to 59.9 percent in the previous quarter and 57.8 percent in the previous year’s second quarter in engagement as measured by Daily Average Use (DAU) and Monthly Active User (MAU). There was no rise in the number of teens using Facebook on a daily and monthly basis over the past year and a half. On the bearish side, Facebook Inc (NASDAQ:FB) is facing a threat as a number of teens are leaving Facebook and opting for other social networks such as Twitter.

Estimates for 2013

For 2013, William Blair has hiked their revenue estimates to $7,274 million from $6,572 million. EBITDA is estimated to be $4,053 million from $3,397 million, and pro forma EPS estimated to increase to $0.72 from $0.53.  In addition to this, Facebook is also estimated to grow its ad revenue by 30 percent in 2014.

Facebook Inc (NASDAQ:FB) has assured investors that it is expecting operating expenditure to surge 50 percent from 2012 to 2013 as it has planned to pent up hiring and aggressive investment.

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