NEW YORK ( TheStreet) - On the heels of Facebook's ( FB)first true earnings beat as a public company, investors and analysts are seeing the social network in a whole new light, pushing shares sharply higher. After previous earnings failed to impress and Google's ( GOOG) recent weaker-than-forecast quarter indicated some in Silicon Valley are struggling to go mobile with earnings, Facebook CEO Mark Zuckerberg and COO Sheryl Sandberg spent most of an analyst conference call making the case that the company will succeed in its efforts to monetize the billion-member-plus social network on mobile devices like Apple's ( AAPL) iPhone 5. The result is that in the span of just a day, the outlook for Facebook's growth and its shares has been completely rewritten. A steady rise in Facebook's shares put the social network up over 19% in Wednesday trading to $23.23, levels not hit since June. While the company's weak post-IPO performance and its slowing revenue colored shares for the past six months, believers in the social network now have a new story to follow -- the transformation of Facebook to a powerhouse in targeted ads and mobility. The biggest concern for Zuckerberg & Co. heading into earnings was whether Facebook could grow revenue as users ditch the network on desktop PC's in favor of mobile devices. The key would be strong growth in mobile revenue and an aggressive retooling of the company's various mobile applications, notably a speed injection to Facebook's Apple iOS app. In third-quarter earnings, Facebook's mobile performance significantly exceeded expectations, as revenue coming from devices accounted for 14% of overall ad-based earnings. "While we were cautious on FB's mobile transition and expectations built into valuation in our June initiation report, 3Q results suggest that FB can effectively grow revenues while usage transitions to mobile platforms from PC," wrote Bank of America Merrill Lynch analyst Mike Post, in a Wednesday note to clients, upgrading Facebook's shares to 'Buy.' The analyst highlighted that Facebook quadrupled the amount of ad revenue it generates from mobile devices in the quarter, which now stands at 20% of total ad revenue. At 14% of overall ad revenue, mobile earnings came in at nearly double Post's forecast for mobile earnings and helped to drive strong year-over-year and sequential revenue growth. In the third quarter, Facebook's revenue rose 32% from year-ago levels and a similar amount sequentially, in spite of declining desktop revenue and earnings attributed to the company's relationship with online gaming giant Zynga ( ZNGA). For more on the gaming giant, see why Zynga should call the cops on Facebook and why the company cut guidance for the second consecutive quarter. Overall, Facebook posted adjusted earnings of 12 cents a share on revenue of $1.26 billion, slightly beating Wall Street estimates on the top and bottom line. Analysts polled by Thomson Reuters expected Facebook to earn 11 cents a share on sales of $1.2 billion in the third quarter, and few made big changes to the company's earnings outlook headed into the quarter. On a GAAP basis, Facebook lost 2 cents a share. Compared with search and display giants Google and Yahoo! ( YHOO) Bank of America's Post now highlights Facebook as the top mobile stock play in Silicon Valley, all but erasing previous skepticism. "What is different for Facebook vs Google or Yahoo, in our view, is that the Facebook user experience, ad formats, and ad pricing may actually be better on mobile devices than on the PC," writes the analyst.
Other analysts upgraded Facebook's shares, citing impressive mobile results and a valuation more in line with the company's earnings trajectors. Mark Mahaney of Citigroup upgraded Facebook to a 'Buy', citing a better link between Facebook's fundamental earnings and its market value. "What investors have for the first time since the FB IPO is fundamentals acceleration WITH a reasonable valuation," writes Mahaney in the upgrade, noting a price-to-earnings ratio of 30 and an earnings growth rate of 30%. Mahaney also highlights that growing fee revenue, in spite of a 9% decline in sequential revenue paid by Zynga, in concert with monetization efforts, minimize two of Facebook's biggest risks headed into earnings. As with Yahoo!'s ( YHOO) Monday earnings , Facebook's quarter was seen by some as less about the numbers and more about a firmer vision for the company. Specifically, the question was whether Facebook's usage and revenue generation trends could bolster its earnings outlook headed into 2013, regardless of whether top and bottom line numbers hit Wall Street estimates. A strong investor reaction to earnings released after the market close on Tuesday indicates Facebook's been able to both impress Wall Street on earnings numbers and the company's overall direction. After an initial stock surge after earnings were released, Facebook added to gains as executives detailed the beat on an earnings call with analysts, pushing shares over 10% higher on Tuesday evening. After a slew of analyst upgrades on, Facebook's shares continue to march higher, rising over 19% in Wednesday trading. Facebook highlighted highly anticipated new platforms like Facebook Exchange and its rebuilt iOS mobile app as drivers of strong mobile growth on the earnings call.
Facebook Exchange lets advertisers tailor ads on the social network based on user interests and is seen as a key piece of monetization efforts. Zuckerberg attributed mobile ad revenue gains to Facebook's commitment to the platform and also said a faster iOS mobile app helped drive surging usage. "I want to dispel this myth that Facebook can't make money on mobile," said Zuckerberg on the earnings call. He also highlighted that Facebook will show continued improvement in mobile as the company focuses its efforts on other app improvements for Google Android devices. Meanwhile, Sheryl Sandberg detailed how companies like Samsung and McDonalds ( MCD) have seen success on the company's Exchange platform since a September launch, in comments that helped to push Facebook's stock higher through the analyst call. The bull case on Facebook has long centered on the network's still-unquantifiable earnings prospects and its growing popularity, but investors should also take stock of obvious risks to the company's share prices through year-end. In particular, Facebook faces a lockup expiration, where $1.2 billion of shares -- 700 million shares in total - could hit the stock market in the next three months, noted William Bird of Lazard Capital Markets, in a note prior to earnings. For now, Facebook, has rewritten the script on its mobile efforts, giving investors and Wall Street analysts new reason to consider the stock after equity investors all-but left the social network for dead after its IPO. For more on Facebook, see why the company's valuation shouldn't be a trick question on Wall Street. Also see why a venture capital investor suggests thinking long term on Facebook after its weak post-IPO performance. Follow @agara2004 -- Written by Antoine Gara in New York