With Booming Profits, Facebook Tells Doubters to Eat Crow

From zero to hero, the freshly minted public company just had its best day ever, beating estimates with its third quarter earnings report sending its stock price soaring over 20 percent to heights not reached since July. Much of the hoopla hung on the...

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Oct 25 2012, 3:00pm

Wait, did Facebook learn how to make money? The freshly minted public company just had its best day ever, beating estimates with its third quarter earnings report, sending its stock price soaring over 20 percent to heights not reached since July. Much of the hoopla hung on the shoulders of mobile advertising, a business which didn’t even exist for Facebook just two quarters ago, when the company made exactly zero dollars on ads for tiny screens. Last quarter, the new business raked in $153 million, about 14 percent of total ad revenues.

“We’re really focused on accelerating the adoption of ads into mobile so we have been introducing more ads into the feed of different types,” Facebook Chief Operating Officer Sheryl Sandberg told Reuters Tuesday, referring to features like Sponsored Stories and Promoted Posts. It’s only the beginning. Analysts now expect Facebook to make $1 billion from mobile by next year.

Not bad for a company that allegedly missed the mobile boat and that is still only “close” to a native Android app. Mobile was supposed to be the company’s Achilles heel. That was a “myth,” Mark Zuckerberg concluded. We simply didn’t get what Facebook was trying to do. “Mobile is the most misunderstood aspect of Facebook,” Zuckerberg said Tuesday, happy to rub his triumph in everybody’s faces.

Mobile growth rate: infinity

“Most people underestimate how fundamentally good the trend towards mobile can be for Facebook,” Zuckerberg explained during the earnings call. For three main reasons. First, it allows them to reach more people. Second, increased accessibility means we check it more often. Finally, Zuckerberg believes he can “monetize better per amount of time spent on mobile than desktop.” We just can’t stop checking our phones (even if they’re smothered in poo) and for Facebook, this means big profits. After months of sweating over whether or not this whole social media thing was the real deal, Wall Street had a bonafide bonanza, bemused they finally had someone other than Apple to cheer for. Barclays, Macquarie, and Jefferies all raised their price targets. Citi upgraded Facebook back to “buy” from “neutral.”

You could almost hear Silicon Valley breathe a collective sigh of relief. Facebook has become the standard bearer of the new New Web. If Facebook fails, so too does everyone else from this latest bubble generation. Twitter is just status updates, Instagram is prettier photos, and Pinterest? What is Pinterest again? Once again, Zuckerberg showed everyone else how it was done, including figuring out how to make money from the elusive mobile market. “This certainly dispels the most bearish view, that Facebook couldn’t monetize people on phones or tablets,” said Colin Sebastian, an analyst with Robert Baird & Co. In all, ad revenue increased 36 percent to $1.09 billion, while its payments business increased 13 percent to $176 million.

For all of the flack Zuckerberg gets — much it deserved for the company’s skeevy history with privacy — he continues to bring it when it comes to business acumen. Credit where credit is due, steering his one billion user strong network under the enduring gaze of the public eye towards consistent profitability is no simple feat. Look no further than Zynga, who on the same day tried to quietly cut 5 percent of its workforce under the cover of the iPad mini spectacle, a company whose potential has been severely wrecked by mismanagement and lack of direction despite a healthy userbase. Even the generally untouchable Google has failed to emerge unscathed. Last week, the search giant accidentally released its earnings early revealing a 20 percent drop in profits. The main culprit? The inevitable transition towards smaller screens.

Facebook, meanwhile, looks better positioned than ever. The company has yet to put ads on Instagram, fast becoming the second most used social network around. And Facebook is becoming increasingly influential versus Google News when it comes to driving traffic towards sites like the Huffington Post, Time.com, and the Daily Mail, says Buzzfeed president Jon Steinberg. Very soon, the company is expected to launch its long overdue native Android app, not to mention the endless slew of new portals from Amazon, Google, Microsoft, and Apple that only make our relationship with the world’s biggest social network more intimate, more easy. Whether you like it or not, Facebook is here to stay and it can only get stronger. Mark Zuckerberg will make sure of that.

Follow Alec on Twitter: @sfnuop