Wednesday, October 24, 2012

Facebook Stock Update

We've commented several times as Facebook shares were hit hard, so it's only appropriate that we comment when they rise a great deal, too.

That said, I'm still very much a watcher and not a buyer. It's too new and too uncertain for me.

I guess that makes me an old fuddy-duddy, but at least I'm consistent.

Facebook Shares Eye Biggest Gain Since IPO on Earnings, Analyst Upgrades has the story:

"Facebook Inc.'s shares surged on Wednesday toward their biggest daily gain since the company's initial public offering in May, one day after the social network reported strong revenue and progress on making money from mobile ads.

The stock climbed to $23.21 (up 19% on the day) in trading, after touching $24.25, its highest intraday level since July 27. Through Tuesday's close, the shares had fallen 47% from their IPO price of $38.

The results came amid intense investor scrutiny of Facebook's growth, and suggested the company is making headway on the selling of ads on mobile devices, an area seen as a driver of its future success.

"They're moving in the right direction, and it seems to be that they're picking up speed," said Kevin Landis, chief investment officer of Firsthand Capital Management, in San Jose, Calif. His firm . . . bought 600,000 Facebook shares before the IPO.

"They are figuring out how to turn it into a great money-making platform," Mr. Landis said. "They're starting to get more revenue on each mobile user, and the mobile users are spending more time on Facebook."

Late Tuesday, the Menlo Park, Calif., company reported an increase in third-quarter revenue that topped analysts' expectations, fueled by sales of ads on its mobile application. Sales of mobile ads accounted for 14% of total revenue, up from none a year earlier.

The social network swung to a loss during the period. But, excluding items such as stock-based compensation, its profit was nearly flat at 12 cents, topping projections for a decline to 11 cents.

The results suggest Facebook "can effectively grow revenues while usage transitions to mobile platforms from [personal computers]," Bank of America analysts wrote in a note to clients early Wednesday. . . .

The stock's gain Wednesday was among the biggest for the Nasdaq Composite Index. It saw Facebook's shares trade at about 47 times the company's expected earnings this year, the highest price-to-earnings ratio in a month, according to FactSet. . . .

Facebook's shares have seen big swings since their debut. The stock briefly jumped to as high as $45 the day of its IPO, but closed at $38.23 that day, just above the offer price. The shares tumbled after Facebook's disappointing second-quarter earnings report and, on Sept. 4, hit an all-time closing low of $17.73.

Wednesday's rally comes ahead of more potential hurdles for the stock. Agreements prohibiting the sale of Facebook shares by early investors continue to expire. In three weeks, another such lock-up agreement expiration could add to the supply of available stock, weighing on Facebook's share price.

On Facebook's earnings call Tuesday, Chief Executive Mark Zuckerberg stridently defended the potential for the company's mobile business. "I think our opportunity on mobile is the most misunderstood aspect of Facebook today," he said. Mr. Zuckerberg added that he expects the company will ultimately make more money from user activity on mobile, based on time spent."

Summing Up

Wild rides aren't for me with new and volatile stocks.

I'm too old fashioned, but I definitely believe Facebook is a great company.

That said, I have no idea how to value its stock and really have no idea how successful its efforts to monetize mobile will be or how long it will take to do so, should it succeed, which it most likely will.

Thus, I'm a watcher for now and probably for long into the future as well. An interested watcher, of course, but still just a watcher.

Thanks. Bob.

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