The Market's Misinterpretation Of Facebook

| About: Facebook (FB)

With earnings around the corner on May 1st and the recent release of its new user interface for the Android, Facebook, Inc. (NASDAQ: FB) is polarizing investors and analysts alike. Bearish investors are highlighting Facebook's inflated P/E ratio of 2,707 as well as questioning its abilities to sustain user retention rate, monetize on mobile ad revenues, and gain sufficient profit share. Bullish investors, however, are basing their predictions on the company's future ability to capitalize on an enormous user base, which is currently over a billion users worldwide and over 680 million active mobile users, a 57% leap from just a year ago. With Facebook now in the limelight, the question has become a matter of how the company intends on raising investor confidence.

It is important to note that Facebook has withstood the test of time in an ever-changing marketplace of social media trends. Lasting for roughly a decade, Facebook has proven to not only withstand a barrage of various social media revolutions, i.e. Tumblr, Twitter, Instagram, etc., but more importantly, adapt towards those trends and absorb them as its own. What investors and stock analysts fail to realize in determining the company's value is the significance of this achievement. Never before in history has a social media giant survived and thrived for such a prolonged period of time with the amount of users as well as retention rates that Facebook currently has. In addition, recent studies show that large portions of users check their Facebook pages prior to even getting out of bed in the morning. Conducive to this mindset are the hundreds of millions of returning users who immediately log into their Facebook pages upon opening up their web browsers. Though one cannot monetize on how often people view their Facebook profiles, we can definitely infer that Facebook is not simply a fleeting trend (as were Friendster and MySpace), but rather a solidified basis for all social media as a whole.

That being said, there are certain elements to Thursday's announcement that were overlooked due to the introduction of Facebook's 's new mobile user interface: Home for Google's (NASDAQ: GOOG) Android. Though the introduction of the new user interface is significant due to its implied developing relations between Google and Facebook as well as the absorption of a new user base, many people overlooked many statements by Zuckerberg himself.

In discussing future directions by which the social media empire was potentially moving in, Zuckerberg delved into the concept of focusing on the people aspect of the platform more so than anything else. Knowing this, we can assume that Zuckerberg intends to delve into other aspects of people's lives other than the social. This should make other sites such as "Linked In" weary as a play by Facebook in any domain of networking (business and or otherwise) would be devastating towards those networking sites. The reasoning for this can be attributed to Facebook's enormous user base, which would readily utilize Facebook's platform rather than any other to prevent the inconvenience of multiple accounts across varying platforms. That being said, Facebook could readily absorb other networking platforms very easily if it were to choose to do so.

The bottom line is that Facebook is a web juggernaut, one that perhaps is not receiving appropriate consideration due to its industry novelty and the archaic forms by which the stock is being analyzed. Rather than examining why the company is so popular in the first place, investors are focalized on the literal gains and classifications of typical companies. As of recently, however, nine analysts have stated that they believe the stock will have a 641% leap in Earnings Per Share during 2013. In addition out of 40 analysts, 20 have ranked the stock a buy, 2 expect it to outperform, 16 believe it to be a hold, and 2 believe it should be sold. The median growth forecast over the next 12 months is 20.5%, a modest increase for the most widely used social media platform in the western world, especially when sites such as LinkedIn (NYSE:LNKD) are succeeding vastly in comparison. Overall I believe that Facebook is worth the aggressive long-term investor's attention, as it bears incredible growth potential and in its first year has displayed an ability to adapt to new circumstances in an impressive fashion.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FB over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.