Facebook rallies on Citi upgrade

Facebook shares rose 15 per cent in pre-open trading on Wednesday after analysts upgraded the stock.

Analysts at Citigroup changed their recommendation to 'buy', saying: 'What investors have for the first time since the Facebook IPO [initial public offering] is fundamentals acceleration with a reasonable valuation.'

This was despite the fact that Facebook revealed a loss of $59 million (£37 million), counter to a jump in revenues.

The social network's income hit $1.3 billion in the third quarter, almost a third higher than a year ago, exceeding analysts' expectations. The loss was a reduction on the $157 million loss made in the previous quarter, but compares to a profit a year ago.

Facebook shares moved down 1 per cent on Tuesday, bringing the stock close to having lost half its value since its initial public offering in May, but looked set to make an impressive rally at the open on Wednesday.

The firm has struggled to turn its online omnipresence into profit. This has been hindered by the increasing access to the site through mobile devices, which are harder to advertise on and therefore monetise.

But chief executive Mark Zuckerberg was positive about the prospect: 'People who use our mobile products are more engaged, and we believe we can increase engagement even further as we continue to introduce new products and improve our platform.'

Citi seem to agree with this assessment, commenting: 'Two of the biggest FB risks (Zynga dependency and Mobile monetisation) appear to have been downsized. We've still seen zero contribution from newer initiatives, eg gifts, FBX, etc.

'Yes, lockups loom, but we believe long-term investors can use weakness around said lockups as a way to leg into positive fundamentals long term.'

Social media expert and business adviser Caroline Baxter acknowledges the stronger-than-expected numbers and suggests Facebook has started to find its way, but warned that the company still faced a 'major challenge'.

She states: 'With mobile usage growing exponentially, Facebook has to find a way to monetise more effectively without crowding the limited space there is.

'Facebook is walking one hell of a tightrope at the moment, needing to please both its users and investors, who each want different things.'

This article was written for our sister website www.iii.co.uk

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