Facebook Inc (FB) Is Still Not Ready to Fly

Facebook has not managed to grow its earnings by much in the last two years, and this year’s earnings are expected to rise just 7.5%. However, analysts expect the growth to pick up next year. Earnings are expected to rise 35% in 2014. Revenue growth has been robust, in the 32% to 40% range in the past four quarters. Non-GAAP operating margin has been trending down in the last eight quarters, from 53% in the second quarter of 2011 to 36% in the first quarter of 2013. EPS trends are mostly flat for the next quarter and the full year, but 2014 estimates have moved slightly down in the last 90 days. The earnings cycle is in slightly negative territory. The growth is not decelerating, and the EPS trends are mostly flat. Operating margin is the worst part, moving the gauge to the slightly negative side. If earnings growth picks up as it is expected, and the operating margin stops contracting, or perhaps moves higher, we could see the share price move higher from these levels.

Bottom line

Although there are signs of improvement, Facebook Inc (NASDAQ:FB) is still not ready to move higher. Pressure from the competition is mounting, and the company needs to keep working and innovating in order to keep the leading role in social media. The stock seems well supported at the $25 level, which is to be closely watched. But I would not expect much from Facebook until the earnings cycle improves, meaning at least somewhat higher expectations and positive surprises.

The article Facebook Is Still Not Ready to Fly originally appeared on Fool.com and is written by Dusan Jovanic.

Dusan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.