Facebook.

After an eight-month roller-coaster ride Facebook has beaten earnings expectations Photo: Getty Images/AFP

Wall Street is still not sure about Facebook.

After an eight-month roller-coaster ride on the public market, the company on Wednesday beat earnings expectations by aggressively ramping up targeted advertisements to its users, including on mobile phones.

It reported fourth-quarter revenues of $US1.59 billion ($A1.52 billion), representing 40 per cent growth. Analysts were looking for a 34 per cent growth in revenue, to $US1.52 billion in this quarter, according to analysts surveyed by Bloomberg.

Facebook earned $US64 million in net income, or 3 cents a share. Excluding certain items, Facebook said it had a net income of $US426 million in the fourth quarter, or 17 cents a share. Analysts had expected 15 cents a share.

But after the earnings report, the stock fell more than 5 per cent from Wednesday's closing price of $31.24, before recovering.

Most Facebook users log in on their mobiles, and so the most closely watched piece of the quarterly earnings was how much money the company brought in from its mobile users. It reported that advertising on the mobile newsfeed accounted for 23 per cent of its advertising revenues, up from 14 per cent in the third quarter of 2012; at the time Mark Zuckerberg, Facebook's chief executive, told analysts he wished to "dispel the myth" that the company can't profit in the mobile era.

This quarter, analysts expected the company to rev it up considerably; Aaron Kessler, an analyst at Raymond James, for example, estimated that it would rise to more than 25 per cent.

"They're experimenting a lot with ad formats," he said. "Not all of them will stick. It's still in a somewhat experimental phase."

Despite the stock's decline after the earnings report, it is still much recovered since last year's slump. After Facebook's fairy tale debut in the public markets last year at $38 a share, the stock plummeted, as Wall Street soured on its ability to grow profits as fast as it had wished. Shares slumped to half the public offering price in September.

But the company focused on its advertising business; rolled out a series of new products aimed at taking on some of its biggest rivals, including Google and Apple; and Mr Zuckerberg took greater initiative to reassure investors it had their interests at heart. Facebook's share price has steadily improved in the past few weeks, suggesting that the company's charm offensive to investors is paying off.

Challenges ahead

Facebook's biggest, long-term challenge remains how to profit from the enormous piles of personal data of its 1 billion users without alienating them or inviting the wrath of government regulators in the United States and abroad. Secondarily, it must figure out a way to profit abroad: The lion's share of its revenues still come from North America and to a lesser extent, Europe.

In the past few months, Facebook has floated several trial balloons designed to please Wall Street and in particular, to persuade investors that it can thrive in the mobile era.

It offered marketers more refined targeting options, including Facebook Exchange, which allows companies to track users as they are browsing and shopping for products around the Web and show them advertisements for those products when they are logged back on to Facebook.

Before Christmas last year, in a bid to step into territory dominated by Amazon, it rolled out the Gifts application, which allows users to buy goods and services for their Facebook friends, and in turn, share with the company an extremely valuable piece of data: their credit card numbers.

Its most ambitious move came in mid-January with a new search tool that mines the vast data posted by individual users and brands. The tool, which the company calls "graph search," promises to help users answer their questions about everything from jobs to restaurant recommendations. It is part of the company's efforts to take on smaller sites like Yelp, for restaurants, and LinkedIn, for employment, and ultimately needle its biggest rival, Google, which dominates the search market.

Jared Belsky, executive vice president of a digital marketing agency, 360i, said marketers were more optimistic about the Facebook platform than even a few months ago. "They have so much information to share on consumers, they are getting better at making data available," he said. "They're helping us target better, but to a point."

Google's shadow

Facebook remains a shadow of Google: With about $US5 billion in revenues in 2012, Facebook earned a little under one-tenth of what Google brought in. Even in the mobile advertising business, Google takes in over half of all revenues, compared with about 8 per cent by Facebook, the research firm, eMarketer estimates.

As part of its aggressive appeals to mobile users, a few weeks ago, Facebook rolled out a way for users to make free voice calls using the internet (think Skype) and leaving voice messages for friends unable to text (think Facebook app for cars).

The Facebook mobile application earlier this month became the most popular in the US, accounting for 85 million unique users, according to the market research firm ComScore. The company had released a new, faster version of its application for the iPhone in August, followed later in the year by a new version for Android phones.

It showed more advertisements to desktop users and its mobile subscribers. Sponsored Stories advertisements appear in the mobile newsfeed and app developers can market their products with what are called app install ads.

One offering, Poke, a fleeting text application aimed squarely at young audiences, sank like a lead balloon. Poke was clearly intended to rival Snapchat, which is popular among teenagers, a demographic that Facebook desperately needs to hold onto.

New York Times