Facebook shares on Monday rose to their highest closing price since the day after its initial public offering amid optimism that the world's largest social network can bolster sales from mobile advertising.
The stock jumped 4.2% to $35.43 at 4 p.m. in New York, the highest close since May 18, 2012 -- the first day of trading after Facebook sold shares to the public at $38 each. The shares have advanced 33% this year, compared with an 18 percent increase in the Standard & Poor's 500 Index.
The gain is a turnabout for Facebook, whose stock slumped as low as $17.73 in September. Concern about Facebook's ability to sell more ads for wireless devices weighed on the shares after its $16 billion IPO, the largest technology offering on record. In a sign that CEO Mark Zuckerberg is now making progress in mobile, Facebook last week said ads on smartphones and tablets generated 41% of revenue in the second quarter, up from 14% a year earlier.
"I would feel a lot more comfortable owning the stock here" than when Facebook held its IPO, said Youssef Squali, an analyst at Cantor Fitzgerald, who recommends buying the shares.
After Monday's rally, the Menlo Park, California-based company was now trading at about 154 times earnings. That's a greater price-to-earnings ratio than all but five companies in the S&P 500, according to data compiled by Bloomberg. A higher multiple can signal that investors think the company may report stronger earnings growth in the future.
Faster than Google
While Google Inc. accounts for more than 50% of the world's mobile-ad market, it's now growing more slowly than Facebook. Internet-search ads -- Google's biggest strength -- are less effective on mobile screens than on desktops, according to Scott Kessler, an analyst at S&P Capital IQ in New York.
Facebook's mobile application has gained support from advertisers because it more closely ties ads to the activities of its 819 million users, said Michael Pachter, an analyst at Wedbush Securities in Los Angeles. Facebook has 1.15 billion members in total -- including people who just use it on desktop computers.
"The existence of a Facebook app on your phone makes you more likely to check on it day in and day out," Mr. Pachter said.
Facebook Exchange, a service that lets advertisers target users based on their web-browsing history, is also helping to boost sales, according to Mr. Squali, the Cantor Fitzgerald analyst.
"We see two huge areas in Facebook's growth -- one is mobile, the other is what they're doing with Facebook Exchange," Mr. Squali said. "They're already driving literally billions and billions of impressions per day. It's growing very, very quickly."
~ Bloomberg News ~