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Facebook wins back friends on Wall Street, shares soar

Facebook's share prices are seen inside the NASDAQ Marketsite in New York May 18, 2012. REUTERS/Shannon Stapleton
Facebook's share prices are seen inside the NASDAQ Marketsite in New York May 18, 2012. REUTERS/Shannon Stapleton

By Neha Alawadhi

(Reuters) - Facebook Inc's shares headed towards their biggest one-day jump on Wednesday after the company reported a surprising rise in mobile advertising, easing concerns it was having trouble capitalizing on soaring use of smartphones and tablets.

Facebook shares were up 21 percent at $23.55 in afternoon trade. They were sold for $38 each in their initial public offering in May but slumped to a low of $17.55 in September as investors fretted about the company's slowing growth.

Several brokerages raised their price targets on Facebook shares. Barclays Capital raised its target to $26 from $23, Jefferies & Co to $32 from $30 and Macquarie Equities Research to $24 from $21.

Citi Investment Research upgraded the stock to "buy" from "neutral".

Facebook, which reported third-quarter results on Tuesday, said it now gets 14 percent of its advertising revenue from mobile ads, a far bigger increase than mostly skeptical analysts had expected.

Mobile advertising has been a key investor concern hanging over Facebook, shaving more than $50 billion off its market value since its IPO. The world's largest social network passed 1 billion active users in September but failed to dispel doubts about its mobile strategy.

Chief Executive Mark Zuckerberg, who has himself lost billions of dollars on paper since Facebook's market debut, said on Tuesday that the mobile opportunity was "the most misunderstood" aspect of Facebook's business.

"In baseball parlance, Facebook hit two doubles; advertising revenue growth accelerated for the first time in at least six quarters (maybe more), and mobile revenues are moving the needle positively following the launch of new ad formats," Robert W. Baird & Co analyst Colin Sebastian wrote in a note.

Zuckerberg hinted in September that the company was "halfway through" a cycle to "retool" and offer new advertising products.

Analysts said new products, most of which are in nascent stages, could help the company deliver stronger growth as they come online and start adding to revenue.

Over time, Facebook's growing expertise in mobile advertising, combined with more user data, will drive mobile monetization for the company, said Sebastian, who has an "outperform" rating on the stock and a price target of $32.

Rivals such as Google Inc are also struggling with a shift in consumer preference to mobiles from PCs.

Marissa Mayer, chief executive of struggling internet pioneer Yahoo Inc, said on Monday her top priority was to fashion a coherent strategy to manage the industry's transition to mobile devices.

SYNCING WITH ADVERTISERS

"Facebook has the potential to utilize user data to better match its users with advertisers," Wedbush Securities Inc analyst Michael Pachter, who has an "outperform" rating on the stock with a $35 price target, wrote in a note.

Needham & Co analyst Laura Martin said Facebook had opportunities to increase branded advertising revenue as top brands increase their association with the company in some form.

Facebook's advertising revenue increased by 36 percent to $1.09 billion in the third quarter.

"The stock has seen its lows and should be able to withstand the coming share lockups," Wells Fargo Securities analyst Jason Maynard said in a note to clients.

Facebook shares suffered a blow in August after early investors got the green light to sell for the first time since the company went public, starting a string of insider lockup expirations that will pressure the stock for months.

On November 14, more than 1.2 billion shares will be available for trading. Zuckerberg will not be able to sell his shares until then.

(Reporting by Neha Alawadhi in Bangalore; Editing by Ted Kerr and Saumyadeb Chakrabarty)

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