Facebook Inc (NASDAQ:FB)’s initial public offering in May 2012 valued the company at $104 billion, the largest valuation to date for a newly-public company. The company’s stock debut at $38 per share was a disappointment as investors saw their investments dwindle to $17.73 per share by Sep. 4, 2012.
Since its IPO, Facebook Inc (NASDAQ:FB) shares have undergone significant analyst scrutiny. They have been buffeted by ambiguous earnings, and until recently were held down by a poorly-monetized mobile business. Following its latest earnings release on July 25, shares of Facebook Inc (NASDAQ:FB) rocketed to $34.36. This rally puts the company just 5 points shy of its issue price. To push its stock prices to new highs, Facebook Inc (NASDAQ:FB) must continue to monetize its mobile user base as it has finally begun to do.
Facebook Inc (NASDAQ:FB) surprises Wall Street
The company’s second quarter report came in well above consensus estimates. Analysts had Facebook Inc (NASDAQ:FB) earning $0.14 per share on $1.6 billion in revenues. The earnings release, and the following earnings call, reiterated how wrong the analysts were. Facebook brought home over $0.19 per share and $1.81 billion in revenues on a 1% increase in operating margins.
Where Facebook hit a home run was with its mobile subscriber base. The ads placed through their mobile platform now generate over 40% of the company’s current ad sales, which is a 11% uptick year-over-year. This monetization is substantial, especially when considering that Facebook’s rival Google Inc (NASDAQ:GOOG) continues to have problems translating mobile ads into increased revenue.
Where Facebook’s competition stands
Google Inc (NASDAQ:GOOG)’s latest earnings release last week was disappointing to Wall Street. Its earnings-per-share was $1.22 below the consensus estimate. Google Inc (NASDAQ:GOOG) noted in its conference call how it has been struggling to squeeze ad revenue from its mobile customers. This is a surprise for investors as the company’s stock inched its way to all-time highs. That being said, I wouldn’t count Google out just yet as the global conglomerate seems to make a way where most businesses would fold under the pressure. I would not recommend buying Google shares at this price, however; it would be better to hold out for a pullback.
This does not account for mobile sales, as the platform is more proprietary and focused rather than bespoke according to users likes and tastes. This does, however, show relative valuations and metrics comparable to Facebook’s if one were inclined to scale the companies to the same size.
LinkedIn Corp (NYSE:LNKD)’s share price of $203.98 per share with a price-to-earnings ratio of 780 is not much more expensive than Facebook (as Facebook’s shares trade over 720 times its trailing earnings.) I can’t see LinkedIn Corp (NYSE:LNKD)’s shares as having much more momentum behind them, however, at least for the next quarter. They are expensive, and should probably be shelved until a better valuation is reached to warrant entry into the company’s stock.
What’s next for Facebook’s shares?
This excellent quarter is exactly what Facebook needed to finally crawl out of the rut it has been in since its first day of trading. As long as the monetization of its mobile user base can accumulate on its top line, Facebook’s company and shares will warrant a stronger valuation.
I believe that the management of Facebook is savvy enough to figure out how to compete against its largest mobile-market competitor, Google, and be able to drive more value to shareholders. Considering this, I certainly agree with the analysts recommendations on the Street, and would buy Facebook shares at this point.
Michael Mandala has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, and LinkedIn. The Motley Fool owns shares of Facebook, Google, and LinkedIn. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Where Does Facebook Go from Here? originally appeared on Fool.com is written by Michael Mandala.
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