Facebook Gains 20% on Unexpected Earnings Increase

After a rocky year and a tough market for IPOs, Facebook FB shares rose more than 20 percent this morning. Investors were particularly impressed with the company's 32 percent increase in revenue and its 61 percent year-over-year increase in mobile MAUs (monthly active users), as well as its ability to profit from mobile devices. "As proud as I am that a billion people use Facebook each month, I'm also really happy that over 600 million people now share and connect on Facebook every month using mobile devices," Mark Zuckerberg, Facebook founder and CEO, said in a company release. "People who use our mobile products are more engaged, and we believe we can increase engagement even further as we continue to introduce new products and improve our platform. At the same time, we are deeply integrating monetization into our product teams in order to build a stronger, more valuable company." Since its initial public offering last May, Facebook shares have been headed south. The peak share price of $38.23 (achieved on the first day of trading) was quickly diminished by fearful investors who were not convinced that the social networking giant could monetize its hundreds of millions (now billion) users. Facebook is finally beginning to show that it does know how to turn a profit. That said, not all is well in the land of social networking. "Overall, gaming on Facebook isn't doing as well as I'd like," Zuckerberg announced during the company's Q3 earnings call. "But the reality is that there are actually two different stories playing out here. On the one hand our payments revenue from Zynga decreased by 20 per cent this quarter compared to last year. But the interesting thing is that the rest of the games ecosystem has actually been growing. "Our monthly payments revenue from the rest of the ecosystem increased 40 per cent over the past year since payments has been adopted. This evolution is pretty encouraging." As "encouraged" as Zuckerberg may be, that does not change the fact that the company's biggest gaming partner, Zynga ZNGA, is struggling to stay afloat. In an attempt to cut costs, the FarmVille maker has closed one studio and laid off more than 100 employees. Despite Zynga's problems and its inability to provide its shareholders with meaningful results, the company is still the worldwide leader of the social gaming market. But its lead is beginning to shrink. On October 1, Zynga had 340 million monthly active users. As of October 24, AppData rankings show that Zynga's MAU has declined to 316 million users. Right now ChefVille has 28 million users. Zynga Slingo is at 23 million. These are two of the company's most popular games. Three weeks ago, they had more than 48 million users each. Despite these declines, Zynga is not likely to shut its doors anytime soon. But if that day comes, Facebook will be forced to fill a significant void. Now that the company has shown that it can profit from one billion people, Facebook might want to re-evaluate its social gaming strategy. Follow me @LouisBedigianBZ