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Facebook shares jumped by more than 25% at the market opening on Thursday, after it beat profit forecasts with stronger than expected mobile ad sales.

On Wednesday, the social networking giant had reported profits of $333 million in Q2 2013.

When trading began in New York, Facebook shares were 25.6% higher at $33.30, the highest since May 2012.

Facebook, which is the world’s largest social networking company, floated on the Nasdaq at $38 a share last year.

Following the release of the latest results, at least 16 brokerages raised their price targets for the firm.

“Facebook has discovered the formula to begin significantly extracting value from its 1.16 billion global users,” said JMP Securities analyst Ronald Josey.

A year ago, Facebook had no mobile advertising and many analysts were skeptical about the firm’s ability to make money in the arena.

Internet companies have been struggling with how to display adverts on smaller screens, as more people use their smartphones to access the web.

Facebook’s revenue from smartphones and tablets made up almost half of total advertising revenue in the second quarter.

Facebook shares jumped by more than 25 percent after it beat profit forecasts with stronger than expected mobile ad sales

Facebook shares jumped by more than 25 percent after it beat profit forecasts with stronger than expected mobile ad sales

The company is widely expected to launch mobile video advertising in the fourth quarter.

“Facebook’s massive audience should be irresistible to brand advertisers as the company preps to launch 15-second video ads, which could be Facebook’s next billion-dollar business,” said analysts at Jefferies & Co.

Meanwhile, analysts at Morgan Stanley expect video advertisements to boost Facebook’s revenues by more than 10%.

In a statement, Facebook chief executive Mark Zuckerberg said: “The work we’ve done to make mobile the best Facebook experience is showing good results and provides us with a solid foundation for the future.”

According to chief financial officer David Ebersman, 20 billion minutes a day were spent on Facebook in June.

“This quarter marks the end of our first year as a public company and I think we’ve created a good foundation for the future,” said Mark Zuckerberg on a call to discuss the earnings.

Facebook made $655.6 million from mobile ads between April and June – more than 41% of the $1.6 billion in overall advertising revenue, compared with 30% for the same period last year. The number of mobile users expanded 51% to 819 million.

“I’d say that Facebook is in a unique position with the ad market right now in that it is very far ahead of any other major ad platform in mobile display advertising,” said Clark Fredricksen of research firm eMarketer.

Facebook has focused on perfecting its ad sales programmes. Last month, it announced changes to its Ads Manager which it said would provide advertisers with better data.

In April, Facebook won back General Motors almost a year after the car company pulled advertising from the site.

Analysts said Facebook’s rival Google has fared less well in the mobile advertising market so far.

Last week, Google posted second-quarter results which fell short of Wall Street’s expectations.

“The Facebook versus Google debate will return to the investment community, after a year-long hiatus,” Stifel Nicolaus analyst Jordan Rohan said.

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Analysts are already predicting Google’s demise as the world’s lead Internet search engine after it suffered a catastrophic nose-dive in its market value.

“[Google] could disappear in five to eight years and disappear in the sense that Yahoo used to be the king of search,” said Eric Jackson, the founder and managing member of Ironfire Capital, a technology-focused hedge fund.

“Now, for all intents and purposes, Yahoo has disappeared,” he said on CNBC Friday.

Google’s stock value plunged a hair-raising 10% this week – wiping out more than $24 billion from the company’s value – after its third-quarter earnings report, which revealed a 20 percent drop in profits over last year, was accidentally released three hours earlier than planned on Thursday.

The profit losses were driven by a decline in advertising revenue, according to its earnings report. The amount that advertisers paid Google on a click-per-click basis fell 15%.

Advertising revenues are falling – and will continue to fall – for Internet companies because consumers are increasingly migrating to mobile applications and advertisers aren’t willing to pay as much for a mobile ad.

“I keep saying Facebook isn’t the only one that has a mobile issue – Google does, too,” Colin Gillis, an analyst for Boston Consulting Group, told CNBC.com.

“If you are an investor in Facebook, mobile is priced into earnings. I don’t think mobile in Google is priced in.”

Google's stock value plunged a hair-raising 10 percent this week

Google’s stock value plunged a hair-raising 10 percent this week

Advertisers aren’t willing to pay as much for mobile advertising because the platform is not as effective as advertising on a desktop or laptop computer, analysts said.

Other companies, such as Apple, will get ahead of Google in attracting advertisers to their mobile applications and Google’s dominance will eventually start to shrink, Eric Jackson predicted.

“I think that there is a big opportunity right now for someone to step forward and assert themselves for a new way of getting people information for doing search in a mobile world,” Eric Jackson said.

“I don’t think typing in a blue box is the ideal format for a mobile world. And I think the best opportunity out there to displace Google in this area is probably Apple’s Siri.”

For now however, despite its drop in earnings, Google remains dominant in online advertising with a 74.5% share of the U.S. search ad market, according to data from eMarketer.

Shares in Apple, the only technology company larger than Google in market value, fell by around 2.8% during trading on Friday.

Facebook, which is another technology stock heavily dependent on advertising for its revenues, saw its shares fall by 0.5% during trading.

The Dow Jones index of trading on Wall Street dipped more than 200 points.

Google blamed its printers for releasing the results by accident. Speculation was mounting on Friday night that Google could make a legal claim against R.R. Donnelley, the company it pays to put out its financial results.

 

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