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Facebook Stock Rally Will Stick This Time

Facebook (NASDAQ:FB) has been on quite a run lately, up more than 40% in about four weeks. The stock remains significantly low its IPO price of $38, so that’s cold comfort to some early entrants, but Facebook stock is up more than 55% from a 52-week low set in early September.

The rally in FB stock might be written off as a broader sentiment rally, since many downtrodden tech stocks — including Research In Motion (NASDAQ:RIMM), Yahoo! (NASDAQ:YHOO) and Dell (NASDAQ:DELL) — have been on a tear lately.

However, I think some of FB’s gains have staying power. Though Facebook stock might not necessarily be a screaming buy, it could be safe to say the worst is over.

Here’s why:

Strong Performance at the Lockup: Facebook released 804 million shares in late November as its lockup on May IPO shares ended. However, unlike the crash we saw in August amid a lockup expiration flight, shares hung tough. In fact, they rallied by double digits. The fact that people aren’t screaming for the exit anymore shows the initial negativity of the painful IPO might be fading.

Analyst Upgrades: Bernstein Research‘s Carlos Kirjner, previously a big bear on Facebook, recently did an about-face on the stock as negativity began to be priced in. He upgraded FB to “outperform” from “market perform” and hiked its price target to $33 from $24. Kirjner particularly likes Facebook’s prospect for revenue growth from mobile ads and e-commerce efforts. Since Oct. 1, Facebook has seen a number of other positive ratings changes. Some are pretty unimpressive, including BTIG Research upgrading from “sell” to “neutral,” Stifel Nicolaus upgrading from “hold” to “buy” with a $26 target, and Cantor Fitzgerald initiating “buy” with a $28 target. However, Kirjner is pretty bullish, as is Oppenheimer, which changed its rating in October to “outperform” with a $41 target.

New Revenue Streams: Some interesting developments lately have included a Gifts service for Facebook users, and the Facebook Exchange for advertisers to help them tailor ads. For instance, the Bits Blog over at The New York Times estimates $200 million to $315 million in revenue from Facebook Gifts — not a game-changer for a company with revenue tracking $5 billion in 2012, but no mean feat. Furthermore, it continues Facebook’s information-mining efforts that ultimately could provide very lucrative data for corporations and advertisers.

Earnings Up: Sure, we don’t have a big sample size here to go on. But Facebook earnings from October were good, for what it’s worth. Adjusted EPS beat targets and revenue was up over 30% year-over-year. Most importantly, however, was a 14% revenue contribution from mobile — proving that, yes, FB can monetize users on tablets and smartphones. The company hauled in $1.7 million a day on mobile advertising last quarter. Facebook reported 28% higher daily active users of 584 million during September.

Clearly, this is not the whole story. Facebook faces challenges including hangover from the IPO negativity, struggles in mobile advertising that could persist and the constant fear of disruption or falling out of favor with consumers.

But there are a lot of positives, too. I’m not personally interested in buying right now … but for the first time, I can understand why someone with shares would hold.

And if the stock rolls back again, I might even understand why some people would make a speculative buy in this social media stock. After all, the brand remains huge with consumers and many businesses feel that a Facebook presence is a necessity in this day and age.

At the very least, they’re reasons to think twice before you sell.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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