Red-hot Facebook's problem: Staying hot

The social network's blowout quarter counters the naysayers. Keeping this torrid pace will be the hard part.

By Jonathan Berr Jul 26, 2013 10:21AM

Ever since Facebook (FB) went public last year, investors have repeatedly questioned whether the huge social network would be able to make money in its mobile business. Well, it did just that in the last quarter.

 

Revenue at the Menlo Park, Calif., company rose 53% to $1.81 billion as mobile advertising surged 76%. Facebook earned $333 million, or 13 cents a share, in net income. That reversed a net loss of $157 million, or 8 cents a share, in the year-ago period. Excluding one-time items, profit was 19 cents a share. Analysts expected profit of 14 cents a share on sales of $1.62 billion.


To call this a blowout would be an understatement. The results were especially surprising considering the recent disappointing earnings reports of tech stalwarts such as Google (GOOG) and Apple (AAPL). Shares of Facebook, whose IPO was derided as a flop, rose 29.6% in trading Thursday. As a result, CEO Mark Zuckerberg's fortune swelled by an estimated $3.8 billion. Not bad for a day's work.

 

Wall Street analysts, who had until recently thought Zuckerberg's company could do no right, now seem to believe it can do no wrong. Not surprisingly, the company's executives are feeling pretty good.

 

Facebook logo (© Daniel Acker/Bloomberg via Getty Images)"This quarter represents a strong validation that we're effectively navigating the shift to mobile," Facebook chief finance officer David Ebersman told Bloomberg News.

 

The one downside -- if you want to call it that -- to Facebook's spectacular results is that investors are going to expect the company to perform as well, if not better, in subsequent quarters. That's going to be tough to pull off over the long run for many reasons.

 

Indeed, as Bloomberg noted, Facebook is expected to take 13% of the global mobile ad market, but that's way less than Google, which is forecast to capture 56%.

 

And Facebook will need to keep an eye on its bottom line.  

 

Excluding share-based compensation and related payroll-tax expenses, costs and expenses rose 52% to $669 million in the latest quarter. Having costs expanding at the same rate as revenue is usually cause for alarm. Facebook, however, isn't a typical company. 

 

But investors who may be tempted to join the Facebook bandwagon now should sit tight. The stock is way too expensive to buy at the moment, with a price-to-earnings ratio that tops 734. Eventually, the shares will come back to earth, but given the mania surrounding the company right now, that might take a while.

 

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.


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8Comments
Jul 26, 2013 11:07AM
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"Faceplant" is breathing it's last breaths. The latest "explosion" of it's stock price is a ploy to get "zuckers" to buy in so it gets back to its IPO price, and all those so heavily invested in this mirage (including Zuck) can cash out and break even.

 

Check back in a year. You'll see. The house always wins.

Jul 26, 2013 10:56AM
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Facebook is not Google, or Microsoft.  Long-term value should be $5 a share.
Jul 26, 2013 2:37PM
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FB will NOT be hot in a sustained way for long.  This is because it is already on the decline in usage between existing users and is failing to attract new users.  It will go the way all such sites have gone before it (i.e. MySpace) and be replaced by the next 'in' site that does basically the same thing with a different look.  Anyone who invests now is foolish, and anyone that over-paid on the first day of the IPO will be lucky to see their original investment back.
Jul 30, 2013 10:54AM
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Why is everyone hating? Enjoy the ride upward shorts.
Jul 26, 2013 11:14AM
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Facebook has it`s MOJO back.The stock will be $100 by Christmas.10 years ago Apple was

$7 a share.

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