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Facebook shares jump as brokers say usage concerns overblown

A smartphone user shows the Facebook application on his phone in the central Bosnian town of Zenica, in this photo illustration, May 2, 2013
A smartphone user shows the Facebook application on his phone in the central Bosnian town of Zenica, in this photo illustration, May 2, 2013

SAN FRANCISCO (Reuters) - Shares of Facebook Inc jumped 5.6 percent on Thursday after two investment brokerages upgraded their recommendations, arguing that concerns over the waning engagement of younger users were overblown.

Still, the share price of the world's largest social network is at a six-month low, partly due to fears that young users were beginning to cool their activities on Facebook, in favor of newer services like Twitter and the increasingly popular photo messaging application, SnapChat.

In midday trading, shares were up at $24.63.

Jefferies & Co and BMO Capital upgraded the stock to buy and outperform, respectively. Their analysts argued that user growth may have leveled off as Facebook gained scale, but it remained the most popular social media service and upcoming products - such as higher-margin video ads - may accelerate revenue growth.

"While MAU's (monthly active users) have somewhat plateaued due to the law of large numbers, we think there is room for financial upside as we expect marketers will find Facebook's 1B+ users irresistible despite any incremental changes in teen usage habits," Jefferies analyst Brian Pitz wrote in a research note.

(Reporting by Edwin Chan; Editing by Bernadette Baum)

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