Shares of Facebook (NASDAQ:FB) opened lower today in line with the broader market, but they quickly recovered those losses to gain more than 3.4%. Much of the investor optimism owes to the social network's announcement that it is preparing to introduce targeted ads into desktop news feeds.
Late last year, Facebook launched Facebook Exchange as a method for advertisers to increase ad effectiveness by targeting users based on online browsing patterns. Exchange promised to increase ad relevance -- something advertisers are willing to pay for, as increased relevance translates into higher conversions.
Facebook only recently launched its strategy for mobile monetization, which includes sponsored stories in mobile news feeds. That mobile move has begun to pay off, and COO Sheryl Sandberg called it one of Facebook's biggest successes of 2012.
On the last conference call, Mark Zuckerberg said that 23% of ad revenue came from mobile during the fourth quarter, compared with 0% at the beginning of 2012. The founder attributed this strength to Facebook's introduction of ads on mobile news feeds, and he said that, importantly, there was no detrimental effect to user engagement.
That's a good sign that ads in mobile news feeds, which are far more visible than the ads displayed on the right-hand rail of the desktop platform, are performing well and not alienating users. The right-hand rail ads are also notorious for low click-through rates, as most users disregard them as banner display ads.
The prospect of Facebook bringing these effective ads to the desktop news feed could easily prove just as successful.
Advertising continues to be Facebook's bread and butter at 84% of revenue last year, although its payments segment has also been growing nicely. Considering the pullback that Facebook has seen over the past two months, a little investor optimism goes a long way.