SAN FRANCISCO (Reuters) - Facebook Inc(FB.O) delivered strong evidence it can thrive on smartphones and tablets on Wednesday, reporting a much better-than-anticipated surge in mobile advertising revenue in the second quarter that ignited a 20 percent share rally.
The world's No. 1 social network, which is battling increasingly aggressive upstarts like WhatsApp for users' time, grew mobile advertising revenue 76 percent to $656 million from the previous quarter.
Facebook, which like rivals Google Inc(GOOG.O) and Yahoo IncYHOO.O have been struggling to adapt to a fast-moving mobile environment in which advertising is typically lower-margin, credited new mobile formats such as newsfeed ads which direct marketing messages straight into a users' stream of news and content.
Last week, Google reported second-quarter results short of Wall Street's estimates as weakening prices for its ads weighed on the bottom line, and Yahoo trimmed its 2013 sales outlook.
"It's pretty healthy on both the top and bottom line. We're seeing accelerating growth, particularly in mobile," said R.W. Baird analyst Colin Sebastian. "That's important because it confirms that advertisers are spending more, allocating more budget to Facebook. The ads seem to be working."
Facebook said roughly 700 million of its 1.15 billion users now visit the service on a daily basis, compared with 665 million at the end of the first quarter. That increase came despite worries that in-feed ads will alienate viewers, and that a new crop of mobile services popular among a younger crowd, such as Snapchat, would siphon off users.
Chief Operating Officer Sheryl Sandberg said the company had increased both the quantity and types of newsfeed adds during the second quarter, even as click-through rates and cost-per-clicks, or ad rates, remained strong.
"Right now, ads on average make up about 5 percent, or one in 20 stories on the newsfeed," CEO Mark Zuckerberg told analysts on a conference call. "In recent studies, people have told us that they notice the ads more. So we're going to invest in improving the quality."
Facebook grew revenue 53 percent to $1.813 billion in the second quarter, above the average analyst expectation of $1.618 billion, according to Thomson Reuters I/B/E/S. Facebook had $1.184 billion in revenue in the year ago period.
The company said that mobile ads accounted for roughly 41 percent of its total ad revenue in the second quarter, up from 30 percent in the first quarter of the year.
It earned $333 million in net income, or 13 cents a share, versus a net loss of $157 million, or 8 cents a share, in the year ago period. Excluding share-based compensation and related payroll tax expenses and income tax adjustments, Facebook said it earned 19 cents a share.
Shares of Facebook jumped 20 percent to $31.81 in after hours trading on Wednesday.
"The company is successfully making the transition to mobile and new ad formats are working really well. Facebook's ad exchange works really well," said Sterne Agee analyst Arvind Bhatia. "Engagement is fairly strong still, so it doesn't sound like anyone is really being turned off by these extra ads."
Reporting by Alexei Oreskovic; additional reporting by Alistair Barr; Editing by Phil Berlowitz