Rising Mobile Ad Sales Propel Facebook Profit

SAN FRANCISCO - Facebook reported strong third-quarter profit on Wednesday, offering further proof that the social network is comfortably migrating its users to mobile devices.

The company, which is the world's largest social network, reported third-quarter earnings of $425 million, or 17 cents a share, in contrast to a loss of $59 million, or 2 cents a share, for the same period last year.

Excluding certain expenses related to stock compensation, Facebook's profit was $621 million, or 25 cents a share, compared with $311 million a year ago. Wall Street analysts had expected the company to post profits of 19 cents a share.

Revenue was $2.02 billion, up 60 percent from $1.26 billion in the third quarter last year. Mobile ads generated nearly half of Facebook's advertising revenue, which was $1.8 billion, up 66 percent from a year ago.

The results, released after the market closed, sent Facebook's stock up about 12 percent, to about $55 a share, in after-hours trading on Wednesday.

'For nearly 10 years, Facebook has been on a mission to connect the world,' Mark Zuckerberg, Facebook's co-founder and chief executive, said in a statement. 'The strong results we achieved this quarter show that we're prepared for the next phase of our company, as we work to bring the next five billion people online and into the knowledge economy.'

The company also continued to add to its user base slightly. In the third quarter, 1.19 billion people used the site at least once a month, up from 1.15 billion in the second quarter.

Since its second-quarter earnings report in July, Facebook's stock price has doubled as investors became convinced that the company's mobile strategy was paying off. That quarter, Facebook disclosed that 41 percent of its ad revenue came from mobile devices, up from virtually nothing in the previous year.

Even some longtime skeptics are changing their views. On Tuesday, before the latest earnings report, Richard Greenfield of BTIG Research upgraded his rating on the stock on from neutral to buy.

'Our upgrade is based on the view that Facebook mobile advertising has gotten notably better and that consumers, at least for now, do not appear to be reducing their usage based on the heavy ad load,' wrote Mr. Greenfield, who was once one of the biggest bears on the stock. 'Furthermore, we believe that Instagram is an asset that may redefine what advertising means, particularly on mobile devices.'

Others remain unconvinced. Nate Elliott, a principal analyst at Forrester Research, said that the company still used very little of the data it has on its users to help marketers to target their messages.

In an open letter on Monday to Mr. Zuckerberg, Mr. Elliott said that a recent Forrester survey of 395 marketing executives found that advertisers were disappointed with their Facebook ads.

'These executives told us that Facebook creates less business value than any other digital marketing opportunity,' he wrote. 'Fewer than 15 percent of those ads leverage your ever-growing cache of social data to target relevant audiences.'

Facebook is expected to account for 5.41 percent of the $117.6 billion global digital ad market this year, up from 4.11 percent last year, according to the research firm eMarketer. (Google, by far the dominant player in digital advertising, will account for more than 53 percent.)

Facebook's presence in the mobile ad market is growing especially quickly. The company will account for 15.8 percent of worldwide mobile ad spending in 2013, according to eMarketer's projections, up from 5.35 percent last year.