Wall Street's love affair with Facebook hinges on mobile

Sun Oct 27, 2013 2:29pm EDT
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By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Facebook Inc finally earned Wall Street's love in the second quarter. Now it needs to make the relationship last.

Its shares have doubled in just the last three months, buoyed by an increasing belief among investors that Facebook has finally struck a winning formula in mobile advertising.

But expectations will be high when the world's No. 1 online social network reports third-quarter results on Wednesday, meaning the world's largest social network will have to handily beat Wall Street targets to maintain its lofty trajectory.

"They've got to prove to investors that they can continue with the growth they demonstrated from the last quarter," said Bob Bacarella, portfolio manager of the Monetta Fund, which owns Facebook shares. "From the way the stock is priced today, the expectations are generally that they will beat or exceed numbers handily."

Revenue from mobile advertising will be the center of attention.

Wall Street analysts expect Facebook to grow its mobile revenue at least five-fold from the year-ago period, with many "official" estimates ranging between $760 million and $840 million. But there are signs that investors are privately hoping for an even bigger number.

"What I've been telling folks is that, in general, $850 million-plus is the number that's needed, maybe even $900 million-plus," said Ben Schachter, an analyst with Macquarie Research, whose own estimate calls for $836 million in mobile ad revenue.

Facebook has regained Wall Street's confidence since a rocky IPO that left its shares languishing under their offering price for more than a year.   Continued...

Facebook CEO Mark Zuckerberg sits for audience questions in an onstage interview for the Atlantic Magazine in Washington, September 18, 2013. REUTERS/Jonathan Ernst