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Facebook Rises to Highest Since May 2012 on Mobile Gains

Facebook Rises to Highest Since May 2012 as Mobile Ads Gain
Facebook Inc. signage projected on the Nasdaq MarketSite in New York, on May 18, 2012, the day they started trading. Photographer: Peter Foley/Bloomberg

Facebook Inc. rose to the 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 percent 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 percent 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 Chief Executive Officer Mark Zuckerberg is now making progress in mobile, Facebook last week said ads on smartphones and tablets generated 41 percent of revenue in the second quarter, up from 14 percent 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 today’s rally, the Menlo Park, California-based company is 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.

IPO Pricing

“It’s clear from the pricing at the time of the IPO that the market didn’t really understand Facebook’s business,” said Brian Wieser, an analyst at Pivotal Research Group LLC who has a buy rating on the shares.

Michael Buckley, a spokesman for Facebook, declined to comment.

While Google Inc. accounts for more than 50 percent 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 Inc. 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,” 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 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,” Squali said. “They’re already driving literally billions and billions of impressions per day. It’s growing very, very quickly.”

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