Facebook Gets Even With Its Past

Facebook's (NASDAQ: FB  ) IPO last year was easily the most controversial offering of 2012. The social network's high-profile debut was marred and manhandled, and surging investor hype heading into the deal led to a frothy offering price of $38. Less than four months later, Facebook shares would dip below $18 -- less than half the IPO price.

One of the most publicized risk factors that Facebook had in 2012 was shifting its advertising business to mobile platforms. With global consumer adoption of mobile devices continuing unabated, investors were worried that Facebook's ad sales might suffer after the company warned as much. On the Q3 conference call, Mark Zuckerberg specifically addressed these concerns: "Finally, I want to dispel this myth that Facebook can't make money on mobile. This may have seemed true earlier this year because we hadn't started trying yet."

Congratulations, Zuckerberg. The myth has been dispelled.

Domination visualization
In the wake of a solid quarter of mobile domination, Facebook shares have rallied today to briefly reclaim the $38 offering price. The stock literally has not traded at $38 since the very first day (when they momentarily touched $45), as it was all downhill for the first several months. Shares have jumped by an incredible 43% since reporting earnings.

And this rise doesn't appear to be fueled by a short squeeze. Ahead of the release, short interest had increased modestly to 39.7 million shares, or just 2% of float. These are bullish investors jumping in, not bears jumping out.

The driving factor is Facebook's progress in building its mobile ad business from scratch. Whereas in 2012, the theme was that Facebook was having trouble monetizing mobile users. In 2013, Facebook is all about monetizing mobile. The company has grown mobile from 3% of ad sales to 41% last quarter. Talk about a revenue ramp.

Source: SEC filings and author's calculations.

Facebook's mobile monthly active user, or MAU, base has ramped up significantly, too. Two years ago, just 325 million users were mobile MAUs, or 47% of total MAUs. Today, those figures have climbed to 819 million and 71%, respectively. Facebook's total mobile ad revenue growth isn't just a function of this growing mobile MAU base, though. The company has significantly increased monetization of each user, with mobile average revenue per user, or ARPU, skyrocketing.

Source: SEC filings and author's calculations.

At $0.84 mobile ARPU, Facebook's young mobile business is now four times as effective at monetization than the entire global payments business, which generates just $0.19 ARPU. The payments business is very concentrated within North America, but even the $0.65 payments ARPU in that geographical segment is below current mobile ARPU.

With Facebook overcoming the overhang of a fumbled IPO, the company can now truly focus on its mobile future, which looks awfully bright considering the figures that the social network is putting up.

Facebook is one of five contenders in the big tech war, although it's not directly competing with all four of the other giants... yet. Facebook knows that its platform should sit on top as a secondary social layer, piggybacking on iOS and Android. Clearly, that strategy is already working, but the battle is just beginning. Learn more about the fight between the five biggest tech by clicking here now.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 31, 2013, at 2:40 PM, mikecart1 wrote:

    "Facebook is one of five contenders in the big tech war, although it's not directly competing with all four of the other giants... yet."

    What are the other four?

  • Report this Comment On July 31, 2013, at 3:34 PM, Biloxi8 wrote:

    They put YOUR money to sleep for a year, and waking up, you find that you still have less what you started out with. The stock fill fall as insiders will cash out. I doubt that they will ever repeat the results of the last quarter. Downhill from here. SELL SELL SELL!

  • Report this Comment On July 31, 2013, at 4:00 PM, ceojoe wrote:

    The facebook World is now and whether or not the bears believe it doesn't matter. The light will kick on soon enough. I'm in facebook for the long haul because it's the best at what it does. The 600 million dollars in advertising last quarter is nothing compared to what's coming. I like the fact that Biloxi8 thinks you should sell sell sell because I'll Buy Buy Buy. Time to wake up Fool's if you haven't already.

  • Report this Comment On July 31, 2013, at 5:37 PM, TMFTomGardner wrote:

    Biloxi,

    It's very hard to believe that insider selling will impact the valuation of this $88 billion company.

    Tom Gardner

  • Report this Comment On July 31, 2013, at 5:40 PM, StockGamingCom wrote:

    FB is unbelievably over-priced.

    But, it has a inverse head and shoulders since IPO.

  • Report this Comment On July 31, 2013, at 6:00 PM, TMFTomGardner wrote:

    How is it overpriced with a run-rate of $1.5 billion in owner earnings and reasonable expectations of 25%+ forward growth for 3-5 years? I'm not shouting that it's underpriced, so I feel the burden of proof lies elsewhere. Can you explain why it is unbelievably overpriced?

    Tom Gardner

  • Report this Comment On July 31, 2013, at 6:17 PM, geekdadnyc wrote:

    @mikecart1 asked "Who are the four" tech giants? Thinking about it, I realized it's an interesting question.

    My knee-jerk reaction was:

    Google

    Apple

    Microsoft

    Amazon

    But I realized that there might be some other players...

    Samsung -- not an architectural leader, but is an undeniable force

    Yahoo -- could be coming back. It's a dark horse.

    Netflix -- if it manages to remake the part of the hollywood industry that isn't destroyed by Google's YouTube, it could be enormous.

    Are there other possibilities that I'm missing?

  • Report this Comment On July 31, 2013, at 9:30 PM, hasimoto wrote:

    Ebay

  • Report this Comment On August 24, 2013, at 10:21 AM, DGraham101 wrote:

    Yeh, just who are the other 4 players at the top of the game?

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