Facebook Gets Even With Its Past


Facebook's 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.

The article Facebook Gets Even With Its Past originally appeared on Fool.com.

Fool contributor Evan Niu, CFA, has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published