Mike Isaac

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The Street Believes in Facebook Again

fbstock380It has been an ugly year for Facebook stock. But perhaps not for much longer.

Shares of Facebook finally rose close to the company’s IPO price on Tuesday afternoon, nearing the $38 per-share amount that the stock first debuted with in May of 2012. The stock closed at $37.61, a single-day gain of about six percent.

The stock has risen more than 43 percent in the span of a week, a massive turnaround for a security which at its lowest point dropped nearly 20 points from the company’s initial price.

To eventually cross $38 is indeed a win for Facebook in regaining lost investor confidence, a threshold that the social giant needs to surpass to convince potential buyers that its shares will perform well in the long term. More than anything else, it is Facebook’s psychological win.

Why the sudden change of heart from the investment community? It’s no doubt due in part to a stellar second-quarter earnings report from last week, where Facebook said for the first time that 41 percent of the company’s advertising revenue is derived from its mobile products, shaking off longstanding concerns that Facebook would be able to cope with the massive industry shift from desktop to mobile devices.

Facebook also announced on Tuesday that it would begin to publish some mobile games, potentially adding a lucrative new revenue stream. And another reminder popped up on Tuesday afternoon that Facebook video ads are soon on the way.

The turnaround has been so drastic that some of Facebook’s biggest bears are doing an about-face on their recent stance.

“We were wrong,” said analyst Rich Greenfield of BTIG, in an investor note published last week. The “magnitude of Facebook’s Q2 revenues and earnings beat dramatically increases our expectations for 2013-2015.”

Facebook’s rally also comes amid a general lack of investor confidence in tech stocks that ordinarily perform well. After a lackluster earnings season last week, Google and Apple are trading at lukewarm levels.

Perhaps it’s too early for investors to cheer for Facebook, especially when many expected the stock to perform far better than it has.

But it is certainly a start.

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Nobody was excited about paying top dollar for a movie about WikiLeaks. A film about the origins of Pets.com would have done better.

— Gitesh Pandya of BoxOfficeGuru.com comments on the dreadful opening weekend box office numbers for “The Fifth Estate.”