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iPhone 5 release pushes Facebook stock higher

An Apple iPhone displaying the Facebook app's splash

An Apple iPhone displaying the Facebook app's splash screen in front of the login page in Washington, D.C. (May 10, 2012) Photo Credit: Getty Images

Facebook Inc. surged as much as 8.9 percent, on track for a record gain, after Apple Inc. said the iPhone 5 has a built-in application for the social network that enables photo sharing and voice-activated posts.

Facebook gained 6.7 percent to $20.71 at 2:04 p.m. in New York as its prominence on the iPhone 5 debuted Wednesday bolstered efforts by Chief Executive Officer Mark Zuckerberg to allay concerns over its ability to generate sales from users who increasingly socialize over handheld devices. The stock had plunged 49 percent since the May 17 initial public offering.

"Now we are a mobile company," Zuckerberg said in an on- stage interview at the TechCrunch Disrupt conference in San Francisco Tuesday, his first since Facebook's IPO. "Over the next three to five years I think the biggest question that is on everyone's minds, that will determine our performance over that period, is really how well we do with mobile." Zuckerberg "struck an upbeat tone," said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco. "Clearly, from his words, they are making progress in mobile." Zuckerberg, who appeared at ease while trading laughs with his interviewer, for the first time elaborated on technical struggles that have impeded Menlo Park, California-based Facebook from creating a user- and advertiser-friendly mobile application.

The company spent too long trying to build mobile products using a programming language known as HTML5, Zuckerberg said.

"The biggest mistake we've made as a company is betting too much on HTML5," he said.

Facebook is lessening its reliance on the tools, and it has built an application better tailored for Apple Inc.'s mobile software, Zuckerberg said. It's also working on an application for Google Inc.'s Android system. New features will be available to the mobile service in the coming weeks and months, he said.

Based on the amount of time users spend on mobile, the company should make "a lot more money" via wireless devices than through desktops, Zuckerberg said. Mobile users also tend to be more interactive than desktop users, he said.

"It makes perfect sense to us that more people have mobile phones so there is a far larger universe of potential Facebook users and it is much easier to check Facebook mobile regularly," said Richard Greenfield, an analyst at BTIG LLC in New York, in a research report.

At the same time, mobile ads may alienate users if the promotions disrupt use of the social-networking service, he said.

"Facebook is not a media consumption service, it is first and foremost a communications tool," said Greenfield. "If your phone call, IM or iChat were disrupted by ads you would never tolerate it. Facebook users did not mind advertising on desktop because it could be ignored." Zuckerberg said Facebook is taking steps to strengthen search capabilities. The company is fielding about a billion search queries a day.

"We have a team working on search," said Zuckerberg, who was interviewed by Michael Arrington, a venture capitalist and the founder of the TechCrunch technology blog. "Search engines are really evolving towards giving you a set of answers." Zuckerberg also said Instagram, the mobile photo-sharing service recently acquired by Facebook, has more than 100 million registered users. Facebook wants to help Instagram, which cost the company about $740 million in cash and stock, to grow to hundreds of millions of users, he said.

Facebook, which hasn't closed above the $38 IPO price since its first trading day, reported in July that second-quarter sales increased 32 percent, down from 45 percent in the previous three months. Facebook rose to as high as $20.36 in late U.S. trading Tuesday after earlier adding 3.3 percent to $19.43 at the close.

The share-price performance has been "disappointing" and it "doesn't help" in terms of employee morale, Zuckerberg said.

Still, Zuckerberg would rather Facebook be underestimated rather than lavished with praise, he said. That gives the company flexibility to make big bets on the future.

"Sure, maybe some people will leave," he said. "But I think it's a great time for people to join and a great time for people to stay and double down."

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