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Apple Inc. (AAPL), Google Inc (GOOG): Facebook Inc (FB) Management Deserves Kudos

Facebook Inc (NASDAQ:FB) hit another all-time high yesterday amid its continued bullish run-up since the company posted blowout second quarter results. With the stock reaching new highs, it’s a great time to re-evaluate the stock’s prospects. As it turns out, Facebook Inc (NASDAQ:FB) stock looks as fairly valued as ever — but it might be a buy anyway.

Explosive growth changes the picture
About a year ago, Fool technology bureau chief Evan Niu called out Barron’s on its shallow claim that Facebook was worth just $15 per share. Trading around $20 at the time — down significantly from its IPO price of $38 — the claim was a bit extreme. Now, with shares above $40, the claim looks downright ludicrous.

Facebook Inc (NASDAQ:FB)

Barron’s biggest mistake was in comparing Facebook Inc (NASDAQ:FB) to mature tech companies Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG). “Facebook is a much younger business, and its financials are but a small fraction of what the iPhone maker or search giant can boast, so stacking them up next to each other in valuation isn’t particularly useful,” Evan explained.

Though Evan correctly assumed Facebook Inc (NASDAQ:FB) had potential for high growth rates going forward, very few could have guessed the extent of these growth rates. Even he wasn’t sure if the stock was a buy at a $20 valuation. Investors wondered whether or not Facebook could actually monetize mobile in the first place.

There’s no wondering anymore. Facebook Inc (NASDAQ:FB) pulled it off. Facebook’s mobile monetization growth driver is in full swing. In fact, Facebook’s revenue growth is accelerating.

Source: Quarterly filings.

Price matters, new concerns arise
Today, there’s a new concern: How long can Facebook keep up its stunning growth rates, and how fast will they taper off? This concern is distinctly different from the uncertainty investors faced one year ago. Back then, Facebook had to prove to investors it can execute. Today, Facebook has proven it can exceed expectations.

With far less business uncertainty, the street has reacted swiftly. Given today’s information, Facebook would undoubtedly be a buy at $20 — but the stock isn’t trading at $20, it’s trading at more than twice its valuation of yesteryear. At these prices, the stock is arguably a hold.

Facebook Inc (NASDAQ:FB) has proven it can monetize mobile, and the company’s valuation more than reflects this major growth driver. Today, investors are focused on new drivers.

  1. Can Facebook find new ways to monetize members? Given its 699 million daily active users, any new service that can be monetized could move the needle.
  2. Can Facebook more effectively monetize Europe, Asia, and its “rest of world” segments? Average revenue per user, or ARPU, in the U.S. and Canada is $4.32. Europe, Asia, and rest of world achieved ARPU of just $1.87, $0.75, and $0.63, respectively, in Facebook’s most recent quarter. 

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