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expectations with accelerating advertising revenue. (Photo: AP) The social network, which faces mounting investor pressure about its growth, recorded another quarterly loss on Tuesday. But the Menlo Park, Calif., company also said it made $153 million in sales from mobile advertisements, a category of business that didn't exist at Facebook seven months ago. The mobile boost helped revenue rise 32% in the quarter that ended on Sept. 30, to $1.26 billion, slightly topping Wall Street's expectations. Shares of Facebook, which rose about 12% to $21.82 in after-hours trading on Tuesday, opened more than 20% higher at $24.12 on Wednesday, helped by some analyst upgrades. On Facebook's earnings call, Chief Executive Mark Zuckerberg stridently defended the potential for the company's mobile business. "I think our opportunity on mobile is the most misunderstood aspect of Facebook today," he said. Mr. Zuckerberg added that he expects the company will ultimately make more money from user activity on mobile, based on time spent. Bloomberg News Facebook COO Sheryl Sandberg.
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Earnings Call Recap MarketBeat: Shares Jump Heard: Facebook Gets Its Mobile Mojo Heard: Facebook's Gift Facebook's third-quarter report card provides the first real glimpse into how the social network is trying to win the battle on mobile phones.
The company only began to roll out ads to its 604 million mobile users in March, through a program called "sponsored posts," which insert paid marketer messages into the home screen of its mobile apps. Since the summer, Facebook has increased its inventory of those ads, and introduced new products, such as an app ad service. Last month, Facebook also began testing a version of a mobile ad network, which places Facebook ads inside other apps. In the third quarter, mobile ads generated 14% of the company's advertising revenue. "We've been very focused on getting more ads into news feedsit's one of our primary priorities," said Sheryl Sandberg, Facebook's chief operating officer, in an interview.
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Track the performances of 150 companies as they report and compare their results with analysts' estimates. Sort by date and industry. More photos and interactive graphics Some analysts questioned whether Facebook will be able to sustain robust mobile ad sales. "Can Facebook really keep jamming ads on a page without upsetting its users?" said Jordan Rohan, a Stifel Nicolaus analyst. "When a company like Facebook introduces new ad formats, many users click on those ads with no commercial intent. That activity tends to subside within a number of months." The rise in mobile ads managed to offset the sequential decline in the company's payments business, which includes the money it makes from Zynga's games. Revenue from the payments
segment fell 9% from the second quarter to $176 million, as users spent less money on virtual goods. On the earnings call, Mr. Zuckerberg said gaming on Facebook "isn't doing as well as I'd like," but he said he was encouraged by the growth of the overall ecosystem. Several game makers, like Kixeye and Electronic Arts, EA +0.61%have begun to take market share from Zynga. Despite higher sales, Facebook's results were bogged down by the cost of paying employees in stock. Facebook recorded a net loss of $59 million versus a profit of $227 million for the yearago-period. Since its highly anticipated debut nearly six months ago, Facebook's stock has lost roughly half its value, amid large stock sales from early shareholders and worries that it will be crippled by the shift from desktop computers to mobile devices. "By the evidence of one quarter, they are obviously showing some progress," said Colin Sebastian, a Robert W. Baird analyst. "But we still don't know which ad formats work and how much advertisers will pay, that's something we'll have to track over time." For now, Facebook still makes the bulk of its revenue from the Web. In the last three months, the company introduced a number of new products, such as Gifts, a service to buy and send realworld gifts, Collections, an image-sharing program similar to Pinterest, and Offers, a promotion tool for virtual coupons