Well, shares gapped up in post-market trading after Facebook earnings showed strong mobile user growth and impressive profits, with FB set to open Thursday 25% above where it was when I penned that line in June … so I guess it’s time to eat a whole plateful of crow.
Sorry, Mark Zuckerberg. Guess you guys should have gotten the benefit of the doubt.
I wasn’t alone in my concerns, of course, with a litany of reasons to doubt Facebook. These included mobile headwinds, a fear of critical mass, reduced margins and a lack of traction with recent products including Facebook Home and Graph Search.
And a day ago, I would have doubled down on my bet against Facebook if asked. Given the continued advertising pressure on Yahoo (YHOO) and Google (GOOG), as reflected by earnings recently, it seemed Facebook was doomed to fall on its face, too.
Facebook posted an impressive earnings beat with a 53% jump in revenue, from $1.18 billion a year ago to $1.81 billion in the latest quarter, and earnings that were up 58% to 19 cents a share. Both blew away projections, with targets at $1.62 billion in sales and 14 cents in EPS.
This is noteworthy not just because it shows growth, but that it shows impressive growth — and particularly, impressive growth in the mobile space, where Facebook tacked on a 51% increase in mobile users over this period a year ago.
Digging deeper into the data, it is also worth noting that mobile advertising revenue represented about 41% of Facebook’s total ad revenue on the quarter. Compare that to just 30% of ad revenues last quarter — an impressive shift in just three months’ time, and serious cause for celebration if that sticks.
Now, I still have concerns. Namely, the fact that mobile will never be as profitable as the desktop game and that eventually there will be a ceiling on how many overall users Facebook can add before it reaches complete saturation.
But that point is not now. As of June 30, Facebook’s monthly users grew 21% year-over-year to 1.15 billion — and daily users were up even more, with a 27% increase in the last year to 699 million folks who check their status every day.
I don’t know what to say other than I was wrong about Facebook stock.
Yes, Facebook continues to spend big on projects that have limited payoff. Yes, there eventually will be a ceiling for users. Yes, margins are being pinched at Facebook just like Google and Yahoo and the rest.
But you can’t dispute the growth and the reach. And because of this, Facebook stock is rallying strongly … and might even see those gains stick with a repeat performance.
- My previous call on FB stock that has proved woefully wrong. (The Slant)
- And to think about all those upset investors a month ago at Facebook’s first shareholder meeting … (Mashable)
- Tom Taulli breaks down the mobile blowout at FB. (InvestorPlace)
- Highlights of the earnings report, including a slide deck. (CNET)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.