Facebook stock scored its biggest one-day gain on Wall Street on Wednesday after Chief Executive Officer Mark Zuckerberg finally gave investors news they wanted to hear - that the social network is making money on mobile.
Facebook shares rose nearly $5 during the day before closing at $23.23, a 19 percent increase from the previous day. The stock still has a long road to get back to its initial price of $38 per share, but the day's trading activity signaled a turnaround - although not necessarily by the company.
"Facebook didn't turn anything around, investor perceptions turned around," said Michael Pachter, managing director of equity research of Wedbush Securities. "There's just been a misperception among investors that as mobile devices became more popular that Facebook wasn't up to dealing with it."
On Tuesday, Facebook posted better-than-expected results for the third quarter, which ended Sept. 30, the company's second earnings period since it went public May 18. But for the first time, Facebook detailed how much it earned - about $153 million - from several new mobile advertising products. Those include sponsored news feed posts that are starting to generate revenue of about $4 million per day, three-quarters of which is from mobile.
Although mobile represented an unspectacular 14 percent of Facebook's total $1.09 billion in advertising revenue, analysts said the results were encouraging, considering that Facebook began at nearly zero when it started experimenting with mobile ad formats in the spring.
In the weeks leading to the IPO, Facebook alarmed potential investors by stating it still had no proven revenue stream from mobile devices, one of the factors that helped turn the heavily hyped public offering into a bust.
Facebook stock began rising immediately after the earnings report was released Tuesday and continued on the upswing after several market analysts upgraded their ratings on the stock.
In Tuesday's conference call with stock analysts, Zuckerberg and other top Facebook executives emphasized that improving the company's mobile product is now a top priority of all employees - and with good reason.
The portion of Facebook's 1.01 billion members who access the social network on smartphones, tablets and other devices rose 61 percent from last year, to 604 million.
Chief Operating Officer Sheryl Sandberg said that so far, ads that appear naturally in news feeds on Facebook members' walls are more effective and showing a better likelihood of being remembered by consumers than traditional online display ads.
"Mobile did much better than people had expected, since this has been the No. 1 concern," said Sterne Agee analyst Arvind Bhatia.
In the past, Zuckerberg talked more about how he wanted to improve the customer experience on Facebook, a message that may not have gone over well with investors who want to hear more about the bottom line.
Bhatia said that during this week's conference call, Zuckerberg was "a different CEO, much more focused on monetizing the company and much more able to communicate that he cares about shareholders and cares about the stock. I think that subtle change will help to alleviate their fears."
It's still too soon to tell how much the stock will rise. Bhatia noted that there are "headwinds" looming this month, on Nov. 14 and on Dec. 14, when restrictions lift that will allow groups of employees to sell their stock.
Those shares could flood the market and weigh down the stock price.
Benny Evangelista is a San Francisco Chronicle staff writer. E-mail: bevangelista@sfchronicle.com
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