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Facebook Inc (FB) Dismantles the Bear Thesis

I was a Facebook Inc (NASDAQ:FB) skeptic. I didn’t think the company would figure out mobile. I was concerned teenagers were dropping the network. I thought the stock’s valuation looked a little stretched. But during the company’s 40-minute conference call, all three pillars of my thesis were dismantled.

Facebook Inc (NASDAQ:FB)

Facebook cracked mobile

Facebook Inc (NASDAQ:FB) has figured out mobile, and the numbers are drool-inducing. Mobile advertising represented 41% of the company’s $1.6 billion advertising revenue versus virtually nothing last year. Active mobile users were up 27%. Cost-per-click, or CPC, rates were up 41%. And all of this is funneling straight to the bottom-line because the company is doing a better job at controlling costs.

In contrast, rival Google Inc (NASDAQ:GOOG) is losing its mobile momentum. CPC rates were down 2%, representing the seventh straight quarterly decline.

Why this divergence? Facebook Inc (NASDAQ:FB) has several advantages in the mobile space.

First is how Facebook Inc (NASDAQ:FB)’s large photo ads are inserted in the news feed of the mobile app. These ads look nearly identical to the content, blending everything together nicely. For advertisers it’s a more compelling offer than Google Inc (NASDAQ:GOOG)’s text based paid listings and small mobile banners.

Second, Facebook Inc (NASDAQ:FB)’s desktop and mobile ads look identical to each other, which makes it easier for advertisers to launch campaigns. This is unlike Google Inc (NASDAQ:GOOG) where differences between platforms create additional hassles.

Zuckerberg is a long way from catching Google in mobile. According to eMarketer, Facebook accounted for 14.9% of U.S. mobile ad spending versus Google’s 52.1%. But this quarter tells me Facebook Inc (NASDAQ:FB) could be on its way to taking a lot of market share. Larry Page look out!

Teens still friending Zuckerberg

There have been lots of reports that Facebook is losing its cool among the important teen demographic because of privacy concerns, parents, and ad clutter. According to a recent Pew Research poll, youth admitted they don’t like the social network as much as they use to. Many bears are concerned that fickle teens might turn Facebook into the next Myspace.

Zuckerberg addressed those concerns head on in the conference call. Everyone, please go to Facebook’s investor relation page and listen to it yourself. It’s the best call you’ll hear this quarter.

“One specific demographic I want to address is U.S. teens. There has been a lot of speculation reporting that fewer teens are using Facebook. But based on our data, that just isn’t true. […] But based on the best data we have, we believe that we’re close to fully penetrated in the U.S. teen demographic for a while and the number of teens using Facebook on both a daily and monthly basis has been steady over the past year and half. Teens also remain really highly engaged using Facebook.” — Mark Zuckerberg