Facebook shares surge 28%, Wall Street sees more ad growth

NEW YORK (REUTERS) - Facebook shares opened 28 per cent higher on Thursday after the company reported a huge jump in mobile advertising revenue, and analysts pointed to further growth from new advertising on Instagram and 15-second videos.

While still short of their IPO price of US$38, the shares hit US$34 - a price not seen since their second day of trading in May last year. At least 16 brokerages raised their price targets by as much as US$9 per share - in sharp contrast to a string of earlier downgrades amid fears it would struggle to make money from mobile advertising.

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

"FB'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," analysts at Jefferies & Co wrote in a note.

Instagram, Facebook's photo site with 130 million users, also looks ripe for the introduction of advertising and could be one of Facebook's biggest revenue drivers, the brokerage said.

Analysts at Morgan Stanley expect video ads to boost ad revenue by over 10 per cent. Facebook is widely expected to launch the service in the fourth quarter.

At least 11 brokerages, including Goldman Sachs, JPMorgan, RBC Capital Markets and Cantor Fitzgerald's have a target price at or above Facebook's IPO price of US$38, a level the stock has never reached since its first day of trading in May last year.

The company has scrambled to address one of the main concerns weighing on the stock since its IPO, by developing mobile ads better suited to small smartphone screens that users increasingly use to access the service. A year ago, it had almost no mobile advertising. In the second quarter, this made up 41 per cent of total advertising, jumping from 30 per cent in the first quarter. Total revenue jumped by half from a year earlier.

"Facebook has discovered the formula to begin significantly extracting value from its 1.16 billion global users," said JMP Securities analyst Ronald Josey. He raised his rating on the stock to "market outperform"from "market perform" and said the company was increasingly becoming a "must buy" for advertisers.