Wall Street’s about-face: Facebook is now ‘king of phones’

This Tuesday, July 16, 2013, photo, shows a sign seen at Facebook headquarters in Menlo Park, Calif. Facebook reports quarterly earnings on Wednesday, July 24, 2013. (AP Photo/Ben Margot)

This Tuesday, July 16, 2013, photo, shows a sign seen at Facebook headquarters in Menlo Park, Calif. Facebook reports quarterly earnings on Wednesday, July 24, 2013. (AP Photo/Ben Margot)

By Jessica Guynn,Los Angeles Times (MCT)

SAN FRANCISCO — Wall Street likes Facebook. It really, really likes Facebook.

Shares are soaring on heavy trading volume after a blowout second quarter in which Facebook reported a huge surge in mobile advertising sales. Suddenly analysts are doing a dramatic about-face on Facebook.

Wedbush Securities analyst Michael Pachter declared the giant social network “the new king of phones.”

“We believe a premium multiple is warranted given that Facebook is just beginning to realize its vast monetization potential,” he wrote in a research note.

His is just one of a flurry of bullish research notes that are driving up Facebook shares. With at least a dozen brokerages raising price targets, shares are trading near $34, a price not seen since their second day of trading. And shares are on pace for the biggest one-day gain since the company’s initial public stock offering in May 2012.

The stock is still not hitting its IPO price of $38. But J.P. Morgan called the second-quarter results “thesis-changing.” Sterne Agee said Facebook’s earnings report “underscores how successful Facebook’s transition to mobile has been.”

Even those who have hammered away at Facebook have changed their tune. Many are now predicting glowing prospects for revenue growth at Facebook.

Consider this mea culpa: “We were wrong,” bearish BTIG analyst Richard Greenfield wrote in a research note that upgraded Facebook to neutral from sell.

“The magnitude of Facebook’s second-quarter revenues and earnings ‘beat’ dramatically increases our expectations for 2013-2015.”

That Wall Street was underestimating Facebook was always an article of faith on the Menlo Park, Calif., campus even as brokerages downgraded the stock on fears it would have trouble making money from mobile advertising. Revenue from smartphones and tablets made up almost half of total advertising revenue in the second quarter.

“Facebooks’s massive audience should be irresistible to brand advertisers as the company preps to launch 15-second video ads, which could be Facebook’s next billion-dollar business,” analysts at Jefferies & Co. wrote in a research note.

Facebook is expected to launch video ads in the fourth quarter.

Instagram, which has 130 million users, could also be a boon for advertising, Jefferies & Co. said.

Also noteworthy: This is the same quarter in which Facebook’s key rival Google disappointed investors. Google has struggled with the very same challenge of making the leap to mobile devices where smaller screens make it tougher to display ads. Last week, Google’s second-quarter results fell short of Wall Street estimates because of declining ad prices.

And that could reignite the Facebook versus Google debate.

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©2013 Los Angeles Times

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