Facebook shares increase by 25 per cent due to mobile advertising revenue - CNBC Africa

Facebook shares increase by 25 per cent due to mobile advertising revenue

Financial

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“It is pretty exciting as no one expected Facebook’s revenues to increase as far as it did,” Alexandre Nossovskoi, an analyst at the trading and investments company Saxo Capital Markets told CNBC Africa on Thursday.

The world's largest social network attributed its performance to a 76 per cent mobile advertising revenue increase to 656 million US dollars.

Nossovskoi stated that Facebook placed a calculated bet on mobile space.

“They put an immense amount of money into the mobile space for advertisers and consumers. They released a Facebook home page, which is a unique mobile platform for Facebook and also simplified the interface for advertisers,” he explained.

Nossovskoi added that advertising budgets are usually tight therefore advertisers would rather invest money in the Facebook Mobile space, where their advertisements can be accessed by an estimated 1.16 billion Facebook users, instead of placing a single advert in a magazine.

Facebook is currently the only social network which has invested in the mobile sector so advertisers only have the option of accessing this space through Facebook.

On the other hand, Nossovskoi believes that the social network’s earnings should be looked at in a cautious manner as the figures only indicate the sentiment of its investors and advertisers. It does not indicate how its users will react to the increase in advertisements.

“The Facebook results should be viewed with caution because its users are like frogs in a slowly boiling kettle,” he said.

“Consumers can tolerate the increased advertising for now. Facebook has gotten a lot more aggressive with the advertising, which is why revenues have increased but if it gets any worse and a half decent competitor comes out, a lot of users will jump ship”.

As a result, Nossovskoi believed that investors should not go into a buying frenzy of the social network’s shares.

“You have to understand that Facebook is trading at 115 times its earnings, which is an immense amount of optimism for Facebook’s future but right now, its price is hugely inflated,” he explained.

If Facebook wants to catch up to its IPO price, Nossovskoi proposes that the company maintain its user base as well as monetise Facebook and Instagram, which they bought over in 2012.

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