Facebook's Rebound: What Drove the Stock Higher
Facebook shares have been hammered by concerns that its ads are becoming less social—and less effective. But just a day after Facebook shares hit a low for the year, they rebounded on Wednesday, boosted by a couple different pieces of news.
Here are three factors driving the stock higher.
Facebook is making money from games.
As Zynga's results suffered, Facebook was hit by concerns that its cut from Zynga and other social game-makers would take a major hit. But Wednesday Facebook released some numbers that show its game business is solidly on track.
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More than 250 million people are playing games on Facebook.com monthly—which means there's even more potential on Facebook's mobile platform.
In February, 55 percent of the top 400 grossing apps in Apple's iOS platform are integrated with Facebook. The number of game installs on Facebook.com are up 75 percent from a year ago and the number of people who pay to play on Facebook has increased 24 percent from last year.
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This translates to real money for developers and therefore Facebook. The social network said that more than $2 billion was paid out to game developers last year. Facebook takes a cut, so that translates to money flowing to Facebook's bottom line, and considering the growth of gamers and payers, that bodes well for this quarter's results.
Facebook will make more money from apps.
Facebook unveiled two new features for its ads to promote mobile apps. These ads are designed to drive Facebook users to the app store, where they'll pay Facebook—and a developer—for an app. If it works, Facebook wins twice: from the ad revenue and from its cut from the app sale.
Facebook is now allowing app developers to target their ads to certain types of mobile operating systems or devices on Wi-Fi only connections. That narrower targeting should help developers whose apps are designed for particular platforms. Facebook is also making it easier for developers to create and buy these ads to promote apps. Now these ads will be part of the "Ads Create Tool" which manages large ad campaigns and integrates with other ad products.
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Facebook is rolling out more effective ads.
On Wednesday afternoon Facebook announced it is launching a "small alpha test" to introduce more targeted ads into its news feed. Last fall the company announced "Facebook Exchange," which allows companies to target users based on their web browsing outside Facebook. Now, instead of just running those ads on the right side of the page, they'll flow into the news feed, a more powerful ad spot.
As part of this test Facebook is working with a number of platforms, including TellApart, Mediamath and Nanigans, and will roll out widely to more users and to more platforms. Targeting is the secret to effective ads, and this should help Facebook hone in on what works.
—By CNBC's Julia Boorstin; Follow her on Twitter: