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Market Update

Facebook's 3Q Mobile Revenue Highlights a Solid Quarter

Improving advertising and user engagement metrics in the third-quarter underscore the attractiveness of Facebook shares, says Morningstar's Rick Summer.

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 Facebook (FB) posted third-quarter results Tuesday that were highlighted by several improving metrics, including stronger sequential growth in ad revenue, improving engagement, and a meaningful mobile advertising business that should easily generate more than $1 billion over the next four quarters. These data are largely in line with our valuation and thesis, and we continue to recommend the shares at these levels.

Advertising revenue grew 36% versus 2011, largely because of new advertising products launched by Facebook. Given the relatively arcane nature of measuring the effectiveness of social advertising, we believe this growth is extremely impressive. When the industry matures and measurement techniques become more robust, we expect revenue growth to accelerate. Even today, we are optimistic that Facebook will continue to find new ways to monetize its user base while protecting the user experience. As evidence, users are going to Facebook more frequently than ever, with more than 58% of monthly users going to Facebook every day. Furthermore, we are seeing improving engagement across all geographies.

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Rick Summer does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.