Facebook's stock surged more than 8 percent Monday, briefly
passing the $26 mark for the first time since July, amid signs that Wall
Street is regaining some of its lost confidence in the social-networking
service's ability to make money.
Shares rose after analysts at two investment firms revised their
previously bearish outlooks for the company, citing a host of new advertising
programs that Facebook has launched in recent months. Both are now projecting
the company will rack up significantly more revenue in the next 18 months than
Wall Street was expecting.
But the reports also cautioned that Facebook is not out of the woods.
Both firms warned that the Menlo Park company still needs to demonstrate that
advertising on the social network is effective over the long term.
"Facebook remains a risky investment," Carlos Kirjner of Bernstein
Research wrote. "If Facebook fails to get enough traction in the next 12-18
months," he added, its "long-term growth prospects would dim."
Facebook stock closed Monday at $25.94, still far below the $38 price the
company set for its much-hyped initial public offering in May. Shares fell
lower than $19 last summer after the company reported slowing revenue growth
and a shift by users toward viewing the network on their smartphones, where
Facebook had very limited ability to sell advertising.
In recent months, however, the company
has launched several new programs that promise to help advertisers reach
specifically targeted audiences, including sponsored messages that appear
directly in the "news feed" that users see on their mobile devices. The stock
has gradually improved since the company reported last month that new mobile
efforts produced $150 million, nearly 15 percent of its ad revenue in the most
recent fiscal quarter.
Facebook's new ads are an early indication that it can make money from
the social network's 1 billion users and its stockpile of data on their social
interactions and "likes," according to Kirjner, who also cited Facebook's new
e-commerce initiative that lets users buy a variety of products as gifts for
their friends. Kirjner was previously skeptical of Facebook's ability to sell
traditional display ads on its site.
Citing new estimates of Facebook's ad sales, Kirjner said he now projects
the company will garner $6.9 billion in revenue next year. That would be an
increase of 40 percent from the $4.99 billion that analysts surveyed by
Thomson Reuters expect Facebook to report for the current fiscal year.
Facebook shares also received a boost Monday from analyst Richard
Greenfield of BTIG Research, who has been skeptical of the company's
prospects. Greenfield, who said he's tracking a significant increase in ads on
Facebook's mobile service, reported that he now projects Facebook revenue to
hit $1.55 billion in the current quarter, or 37 percent higher than the same
period a year ago.
Greenfield warned that Facebook's efforts to sell more mobile ads could
backfire if users become annoyed by the onslaught. "We believe Facebook is
making a serious user experience mistake that will be problematic longer
term," he wrote in a note to investors.
Facebook executives say they are taking pains to minimize this risk,
while stressing their belief that mobile ads represent a tremendous source of
revenue.
In a recent interview, Facebook advertising product director Gokul
Rajaram said the company is careful to monitor members' reactions to new ads
and to let them mark messages they don't want to receive. "User satisfaction
is paramount," he added.
