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Facebook beats analyst estimates, talks up mobile plans

Zuck: 'We'll make more on mobile than on the desktop'

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Mobile was the big topic for Facebook during its second quarter as a public company, and execs spent much of their Q3 earnings call on Tuesday trying to convince analysts and investors that the social network has a strong future beyond the desktop.

"I think our opportunity on mobile is the most misunderstood aspect of Facebook today," CEO Mark Zuckerberg said during the call. "Long-term I think we're going to monetize better for the amount of time spent on mobile than on desktop."

If that prediction comes true, it will certainly be great news for Facebook investors. Some 1.01 billion users accessed Facebook each month during the quarter ending September 30, 2012, a 26 per cent increase over the same quarter the previous year. Of those, 604 million – well over half – accessed Facebook using a mobile device, a stunning 61 per cent year-over-year increase. And Zuckerberg says mobile users access Facebook more often, too.

But although most of Facebook's traffic already comes from mobile, it cannot yet say the same of its revenue. Total revenue for the quarter was $1.26bn, up 32 per cent from Q3 2011. Of that, 86 per cent came from advertising (up from Q2's 84 per cent). But mobile advertising still only accounted for 14 per cent of that.

Facebook COO Sheryl Sandberg said the company is moving aggressively to address that issue, by developing products that will help drive more advertising revenue, both on the desktop and on mobile.

Chief among these initiatives, she said, were various new types of targeted ads that appear in Facebook users' news feeds, rather than in the traditional right-hand column of the site. Not only do ads in news feeds tend to get more response from users, she said, but crucially they can also be seen by mobile users.

According to CFO David Ebersman, because Facebook can charge a premium for such targeted ads, the average price paid per ad during the third quarter was up 7 per cent from the previous year's quarter.

"I want to dispell this myth that Facebook can't make money on mobile," Zuckerberg said. "This may have seemed true earlier this year because we hadn't started trying yet."

Zuckerberg said Facebook was also working on ramping up the gaming aspect of its business. In-game payments and other fees made up $176m of Facebook's revenue in the third quarter, a 13 per cent increase year-over-year, but a 9 per cent decline from last quarter.

"Overall, gaming on Facebook isn't doing as well as I'd like, but the reality is that there are actually two different stories playing out," Zuckerberg said.

One of those stories is that revenue from online gaming titan Zynga, long considered one of Facebook's most important partners, was down 20 per cent in the third quarter. But the other story is that revenue from the rest of the social network's gaming ecosystem was up 40 per cent, Zuckerberg said, suggesting that there is yet life in Facebook as a gaming platform should its symbiotic relationship with Zynga ever be severed.

Still, despite generally strong earnings, Facebook posted a loss of $59m in the third quarter, compared to the $227 in earned during the same period in 2011.

As with the loss it posted in Q2, however, most of the shortfall can be attributed to share-based compensation, related payroll tax expenses, and income tax adjustments. Excluding those charges, Facebook earned $311m, or 12¢ per share, slightly beating analyst estimates and matching its adjusted earnings per share from the previous quarter.

In fact, much of Facebook's Q3 earnings report sounded very similar to the previous quarter's report. And yet, while last quarter's report sent the social network's stock price spiraling to a new low, the latest report actually saw its shares creep upward in late trading.

It seems that although huge profits and massive growth would be nice, investors can still see consistency and stability as good things, too, particularly for a company as new to the market as Facebook. ®

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