Will mobile save Facebook or destroy it?

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author nameThree months after going public, Facebook closed Thursday at a new stock market low of $20.04, down 4 percent for the day and off 47 percent compared to its IPO price of $38. Facebook's first-ever quarterly earnings report, issued last week, certainly didn't improve its Wall Street stature: The social network posted net losses of $157 million, with executives placing the blame on $1.3 billion in share-based compensation and payroll tax expenses related to its IPO. Facebook's revenues for the quarter increased 32 percent to $1.18 billion from $895 million a year ago--advertising generated 84 percent of that total, growing to $992 million, up 28 percent year over year.

Facebook vows to right the ship with the introduction of new and improved mobile social networking experiences. "Facebook is the most used app on basically every mobile platform," co-founder and CEO Mark Zuckerberg said during the company's earnings call. "So when we think about what we want to do right now, we want to increase the depth of experience in addition to just growing users. We want to not just have applications that people use, but also be deeply integrated into these systems as much as possible, and develop an ecosystem where other apps can be built on top of Facebook." (Case in point: Apple's (NASDAQ:AAPL) forthcoming iOS 6 mobile operating system update, which will include deep Facebook integration.)

Facebook also will turn to mobile advertising to improve its financial fortunes. Desktop display ads and Sponsored Stories promotions integrated into users' News Feeds make up the bulk of its existing advertising revenues, but in the weeks before and after its IPO, the company has accelerated its mobile ad efforts, and last month introduced a mobile-only version of Sponsored Stories enabling marketers to target consumers exclusively on smartphones and tablets. "By the end of June, Sponsored Stories in News Feed was at a run rate of over $1 million per day in revenue, and about half of that is coming from mobile," Zuckerberg said.

Facebook now boasts 955 million monthly active users worldwide, up 29 percent over a year ago, with daily active users topping 552 million, a 32 percent year-over-year increase. Mobile monthly active users reached 543 million, surging 67 percent over year-ago totals. Facebook added that 58.86 percent of its total userbase now accesses the platform via mobile device: "On average, mobile users are around 20 percent more likely to use Facebook on any given day," Zuckerberg said. But Zuckerberg failed to mention a key piece of information included in Facebook's 10-Q Securities and Exchange Commission filing: The number of users who accessed the site exclusively via mobile device increased to 102 million in the second quarter, a 23 percent quarter-over-quarter leap. That means close to 20 percent of all Facebook mobile users never even access its desktop site and never see the ads displayed there--sometimes as many as 10 per page, compared to the single ads occasionally inserted into mobile News Feeds.

Facebook's 10-Q filing cuts to the heart of the matter. "While most of our mobile users also access Facebook through personal computers, we anticipate that the rate of growth in mobile usage will exceed the growth in usage through personal computers for the foreseeable future and that the usage through personal computers may continue to decline in certain markets, in part due to our focus on developing mobile products to encourage mobile usage of Facebook," the filing states. "If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected."

Facebook acknowledges it can't dramatically ramp up its existing mobile ad efforts: "We're being very careful about the volume of Sponsored Stories in the News Feed because it's so core to the user experience," CFO David Ebersman said on last week's earnings call. And yet there are no indications Facebook has a clear mobile roadmap in mind. Analysts are already calling for something new and game-changing. "I think Facebook is going to have to find a different way to monetize mobile that isn't about little display ads," Melissa Parrish, an analyst at Forrester Research, told IDG News in reference to Sponsored Stories, while Altimeter Group analyst Chris Silva derided Sponsored Stories as "blunt instruments," adding "Facebook is leading now for lack of anybody coming along and innovating." But it's hard to shake the feeling that if Facebook knew exactly what it took to monetize the migration to mobile, those plans would have been set in motion before the IPO. Mobile may still right the ship--or it could be what sinks Facebook for good.--Jason

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