By Alexei Oreskovic
SAN FRANCISCO (Reuters) - Facebook Inc posted strong growth in its mobile advertising business on Wednesday but rattled investors after saying that it did not plan to boost the frequency of ads shown to users.
Shares of the world's No. 1 online social network soared as much as 15 percent in extended trading before suddenly falling to $47.40, down 3 percent from its $49.10 closing price.
In previous quarters Facebook has shown one ad per 20 "stories" in the newsfeed, but Chief Financial Officer David Ebersman told analysts Wednesday that the current ratio, although slightly higher than 5 percent, would not increase much more going forward.
Ebersman's comments, combined with remarks suggesting that young teenage users were beginning to use Facebook less frequently, soured the mood abruptly on an afternoon when the company topped Wall Street's targets with a whopping 60 percent increase in revenue, driven by its accelerating mobile business.
"There seems to be concern about the ad load not going up," said BTIG analyst Richard Greenfield.
But Greenfield said he believed investors were over-reacting, noting that the real impetus behind Facebook's rapidly growing top line has been an increase in its advertising prices, rather than the volume of ads.
As a public company, Facebook has had to balance showing more ads with the fear that too many of them would irritate fickle users and drive them elsewhere.
But Facebook's core advertising units appeared to be performing better than ever in the third quarter.
Revenue from mobile ads, which appear on smartphones, represented 49 percent of Facebook's total advertising revenue in the third quarter, or roughly $880 million. Mobile ads generated roughly $150 million in the year-ago period, when Facebook was just beginning to develop its mobile ad business.
"It looks like they're firing on all cylinders," said JMP Securities analyst Ronald Josey.
He said that Facebook's strong mobile advertising revenue in particular has put to rest the worries that many investors had at the time of the company's 2012 IPO.
"They clearly have the product, they have the traffic and now they have the advertising solution," said Josey.
Facebook said the number of its monthly active users increased to 1.19 billion as of the end of September, up from 1.15 billion at the end of June. Facebook said it counts roughly 507 million daily active mobile users.
Shares of Facebook has doubled in the past three months, as Wall Street has warmed to the Internet company's ability to thrive as consumers increasingly access the Web on smartphones and other mobile devices.
Facebook's total revenue in the third quarter was $2.016 billion, ahead of the average analyst expectation of $1.911 billion, according to Thomson Reuters I/B/E/S.
Facebook said it earned net income of $425 million, or 17 cents a share, in the three months ended September 30, compared with a net loss of $59 million, or 2 cents a share in the year-ago period. (http://link.reuters.com/xas34v)
(Reporting by Alexei Oreskovic and Gerry Shih; Editing by Bernard Orr)
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