Facebook (FB) offered at $38 per share in spring 2012, then quickly became the dog of the Nasdaq with a slump to about $18 in a matter of months.
Investors shouted down Morgan Stanley (MS) for its role in a sketchy IPO and maligned the social media space as just a fad, and some folks started to talk about CEO Mark Zuckerberg like he was finally just a mere mortal now that he lost billions in personal wealth as FB stock had crashed and burned.
Now, however, Facebook stock has topped the $45 level to hit an all-time high, and a series of strong earnings reports indicate that FB is evolving into a mobile powerhouse in a rapid and agile way.
So should investors buy Facebook stock?
Maybe. After all, Facebook is one of the Internet’s advertising behemoths in a league with Google (GOOG) and Yahoo (YHOO) — and unlike both of those companies, has the luxury of being in a growing sector. Social media and mobile clearly are the way of the future, while Google’s model of desktop advertising is threatened and portal pages like YHOO and AOL (AOL) are even more at risk.
And considering the mega-shift into mobile across all devices and consumer businesses — from the shakeup at PC-oriented companies like Microsoft (MSFT) and Dell (DELL) to media companies like Yahoo and AOL that have to adapt to lost advertising real estate on a smaller screen — it’s good to see that Facebook at least has a vibrant user base.
All that said, it’s undeniable that Facebook stock has a big problem when it comes to margins. And that’s all because mobile simply isn’t as profitable for advertisers like Facebook.
Consider that in its June earnings, Facebook reported that while 70% of monthly active users were on mobile (751 million of 1.1 billion total), that mobile segment generated only 30% of all ad revenue. As time goes by, that shift away from the desktop experience will become even more pronounced, with FB stock seeing margins pinched even more.
But at least sentiment has shifted. Facebook stock is growing profits and revenues, and Wall Street has finally gotten over the pain of the initial public offering that rocked the market a year and a half ago.
Personally, I wouldn’t count out FB stock, but right now the forward P/E of over 45 seems awfully rich. I’m not a seller, but I’m not a buyer of Facebook either.
There are better options out there either to play online advertising (I like Google a lot) or to play mobile tech via Apple (AAPL) or other hardware plays instead of Facebook stock.
Related Reading on Facebook Stock
- Jeff Macke asks whether Facebook stock is thriving instead of just surviving. (Breakout via Yahoo Finance)
- While I’m not buying, admittedly, I was wrong to write off Facebook altogether. (The Slant)
- How a Russian tech mogul made a mint on FB stock. (Dealbook via NYT)
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.