Good news for Facebook: The social networking site seems to be knocking down the naysayers who didn’t think it could produce advertising revenue fast enough, especially on mobile platforms, to justify its high stock market valuation.
Facebook said late yesterday that it posted earnings per share of 19 cents on revenue of $1.81 billion for the second quarter of 2012–an increase of 53 percent from the same time last year. The shares rocketed 27 percent today to $33.69, nearing its IPO price of $38 last year.
The rise in sales and profit, which outpaced analyst’s expectations, was fueled in large part from growth in mobile and local ad sales. Advertising revenue rose 61 percent to $1.6 billion, from the same quarter last year. About 41 percent of this revenue–approximately $656 million– came from mobile advertising.
According to Brad Schaefer, an analyst with Sageworks, the average small business spends a little bit more than one percent of its annual sales on advertising. “The increased revenue that Facebook is seeing from small businesses seems to provide a clear-cut example of the oft-discussed merger of social media and advertising, as well as the plethora of newer, non-traditional advertising outlets that businesses can use,” he told ABC News.
“I would never have dreamed of this number, particularly this early in the life of Facebook,” Arvind Bhatia, managing director of equity research at Stern Agee, in Dallas, told ABC News. “But ninety to 100 million people in the US are logging onto Facebook every night during primetime. That’s got to be music to the ears of advertisers.”
Facebook’s daily active users hit nearly 700 million in June, a 27 percent jump from the previous year.
Scott Morris, the business manager at Elyse Harney Real Estate, in Salisbury, Conn., said his company has been advertising on Facebook since May. While it’s difficult to gauge its effectiveness so early on, “We’ve had reasonable good activity of people who have liked or clicked through some of the ad campaigns we have done,” Morris told ABC News. “We went from 30 likes to over 700 likes in two and a half months. Will they be a customer? Probably yes, if they find they want to look for real estate in the Litchfield County area.”
But other companies said there weren’t sure if their paid advertising would actually translate into sales. ”Lots of people will tell us they found us on Facebook,” said Chris Gifford, a studio manager with Weddings By Two, a photography studio in Brooklyn. The problem, he noted, is that since the organization also has a Facebook page, it’s hard to discern what business comes from that and what comes from paid advertising.
Still, he has no plans to stop advertising on Facebook. “It’s kind of the crux of what we do now,” he said.
(This story has been corrected to show the IPO price was $38.)