New York – Following a 6 percent increase on Tuesday, share prices for Facebook, Inc. (NASDAQ, FB) almost reclaimed its $ 38 IPO price for the first time since going public in 2012. In the past week, the stock has surged more than 40 percent after the company reported better than expected results for the quarter just ended. While the company has more than 1 billion active users, the stock has never traded above $ 38 since its IPO.
While some analysts remain cautious, concerns about issues that dominated post-IPO trading from slowing revenue and massive insider selling have abated. According to Aaron Kessler at Raymond James, ‘most companies of that size don’t re-accelerate their growth rate; Facebook’s been an exception … I would say they’re in better shape today than they were at the (time of their) IPO.’
While active user growth has eased investor concern, active users increased 21 percent to 1.15 billion with most of the growth in active users was in developing countries. The cornerstone of the company’s recent success hinges on its mobile advertising business, an area where Facebook appears to have an early lead on their competitors – mobile advertising revenue grew 75 percent in the most recent quarter.
Based on the company’s second quarter results, many analysts raised their price targets above the $38. According to Evan Wilson from Pacific Crest Securities, the results ‘were a real game-changer in terms of how Facebook is perceived by investors.’
Building on its mobile advertising success, the company announced plans to market and distribute mobile games in exchange for a commission of the games revenue, and many are expecting premium ads, such as video ads to be released in the coming months.
However, there are some underlying issues with Facebook and it remains to be see if the company can sustain its advantage in mobile advertising as competitors, such as Google (NASDAQ: GOOG) are likely to find ways to catch up. Most of Facebook’s user growth is in developing markets, such as Asia. According to analysts, a new user in Asia is equal to 75 cents in ad revenue while a new user in North America nets the company more than $ 4.00. If competitors catch up in mobile, fears of how much revenue and profitability the company can generate could return.
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