Why Is Facebook's Stock Surging? Mobile Ads

Facebook's little stock-that-couldn't is on track for its biggest one-day gain ever and it has everything to do with yesterday's earnings report in which it reported a $59 million loss.

Facebook's little stock-that-couldn't is on track for its biggest one-day gain ever and it has everything to do with yesterday's earnings report in which it reported a $59 million loss. Even with that number, the quarterly report beat Wall Street expectations, and then shot up over 24 percent in after-hours trading.  This morning it opened at $24.12, after closing at $19.50 before its Q3 earnings came out. It has sunk a bit, as of this writing, but is still trading over 20 percent up for today. That positive movement is all because of this tidbit from the earnings report: The company made $153 million from mobile advertising. Why? Let's explore.

From no "meaningful revenue" to $153 million in six months. Before its IPO, Facebook disclosed that it had no way of making money off people who use the iPhone or Android app, writing this foreboding statement in its amended S1. "We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven." After a concerted effort to get better at cell phones, including an updated app and most lucratively mobile Sponsored Stories, the company has negated that statement.

Sponsored stories are working. Starting last June Facebook began sticking its Sponsored Stories in the mobile news feed. Since, that has tripled from a $1 million dollar per day businesses at the end of September to $3 million per day as of this earning's report, making it 14 percent of Facebook's advertising related revenue.

Things look even better going forward. This little line from the earnings call says it all: "Further, mobile might ads might be worth more than desktop ads," Zuckerberg said. The early research is finding that is true for Facebook, even though it is traditionally not true for ads on phones, which get pennies to a desktop ad's dollars. The social network, however, is finding that this type of user approved ad gets better results. AdParlor CEO Hussein Fazal, one of Facebook's biggest buyers, gave the following graph (sans axis) to Business Insider's Jim Edwards to prove the effectiveness of one type of ad over another.

That matches this click through rate comparison from TBG Digital, another major buyer of Facebook campaigns and ads.

Facebook's doing something other Internet companies haven't figured out. Like Facebook, Google's earnings report made a mark because of its mobile situation. Just, it did so in the exact opposite way. Following its (unexpected) early release, the stock tanked because its cost per click shrunk for the fourth quarter in a row. Though Google has claimed that it's on track to make $8 billion from mobile, with ads being the bulk of that, according to CEO Larry Page, Google gets so much less for phone ads than computer ones.