Facebook (NASDAQ: FB) is back on track as it has finally began to dust off the effects of its botched IPO, among other business challenges. Facebook lost more than 50 percent in market value within four months of going public, after it slumped from its May 18, 2012 offer price of $38 per share to trade at $17.55 in September.
The social networking giant also reported a loss in two consecutive quarters as it struggled to make the numbers count in Ad revenue and Mobile monetization. The company also invested heavily during 2012, acquiring several startups, including Instagram and Face.com. Moreover, Facebook introduces a number of features and strategies towards its ad monetization campaign.
Notably, Facebook introduced sponsored stories, which are already paying dividends, as well as promoted posts, Facebook Gift Service, and Facebook Ad Exchange. Other additions to the social media giant include the Facebook Jobs App, which seeks to challenge LinkedIn (NYSE:LNKD) on the professional networking platform, and Search, in partnership with Bing.com, which is perceived as a genuine future competitor to Google (NASDAQ: GOOG).
Back To Profitability
Facebook is back to profitability having reported a non-GAAP EPS of $0.17 per share, beating a consensus estimate of $0.15 for the December quarter. The company reported revenue of $1.59 billion, compared to analyst estimates of $1.51 billion, and non-GAAP EBITDA of $960 million versus consensus estimates of $855 million, representing a 32 percent year-over-year growth rate. The company’s overall revenue during the quarter increased by 40 percent year-over-year, and 26 percent sequentially.
Facebook’s Challenge on Search and Jobs App
The biggest challenge to Facebook is to maintain the trend. This will be very difficult given the fact that some of its business units face stiff competition from market leaders. Also, Arvind Bhatia, an analyst at Sterne Agee, believes that Facebook’s EBITDA is due to succumb to pressure as the company increases investment in R&D. The company is indeed venturing into new areas of business, including Search, well dominated by Google, and Professional networking business, which LinkedIn’s main income generator. It will need to invest highly in R&D for it to stand any chance of making an impact.
In a recent note to investors, Arvind Bhatia wrote,
Strong 4Q mobile performance should strengthen belief in the long-term story, though some “whisper” expectations were unreasonably high. Importantly, desktop ad revenue was up as well. New products: Facebook Exchange (FBX), Custom Audiences, Offers and mobile app installs, etc. seem very promising and should continue to drive strong top-line growth. FB plans to step up spending to capture these and many other opportunities (FB Gifts, etc.) ahead.
The analyst reiterated Facebook at Buy with a price target of $37.
LinkedIn, Facebook’s Jobs App competitor, is reporting earnings on Feb. 7. Analysts are optimistic that LinkedIn, which also is upping its game in professional networking, will beat analyst estimates for the December quarter.
Meanwhile, Google introduced product listing ads in place of Google Adwords in an attempt to counter Facebook’s progress in the search business, an event that saw it cannibalize on high margin Adwords business. Nonetheless, Google’s earnings did beat analyst estimates for the December quarter.
Facebook’s stock price is back on track as it now oscillates on the $30 per share mark. The company has recovered to nearly double its low of $17.55, realized in September. Additionally, analysts seem to be bullish on the company’s stock price and outlook.
A lot of expectations are placed on the company FBX, and Sponsored stories, as analysts remain cautious on Jobs App and Search. LinkedIn and Google command those two businesses, respectively, but that could be only for the moment. If Facebook could maneuver a successful path through, then its wide user base could be a powerful tool against Google and LinkedIn.
A majority of analysts have price targets that breach the $30 per share mark, and have attached a Buy rating or equivalent on the stock. Some of the firms, for instance Deutsche Bank and Topeka Capital, have a price target of $40, while Piper Jaffray’s target is at IPO price. These are signs of optimism from analysts, which should trickle down to the investment fraternity in a matter of time.
Perhaps there is still time to buy this stock as it claws its way back to $38 and beyond.