Has Facebook Won With The Latest Report?

| About: Facebook (FB)

Facebook (NASDAQ:FB) has been doing well in this fiscal year. In its latest report, it announced that its revenues had risen 53% to $1.8 billion for the second quarter, well ahead of Wall Street's estimates of $1.62 billion. Much of the gain came from the mobile sector, which now accounts for 41% of Facebook's revenues. The company's net income was $0.19 a share, compared to analyst estimates of $0.14 a share. Facebook's operating margin increased to 31% from 26% the previous quarter. Consequently, Facebook's shares rose 26.81% on the earnings news.

At the current valuation, Facebook trades at 43 times its forward earnings. The company's business grew at double-digit rates in the last quarter, driving revenues through the mobile sector. Assuming that mobile revenues continue to increase, the stock will be even more interesting. Wall Street analysts predict $0.91 in EPS for the fiscal year ending in June 2014.

Who Owns Facebook?

Facebook is a popular tech stock among hedge funds in the second quarter of 2013. On the strength of its latest performances, Matrix Capital Management increased its portfolio by 200% this quarter. Sigma Capital Management also increased its stakes by 100% to 800,000 shares. Patrick Mccormack's Tiger Consumer Management has a stake of 3.6 million shares in the company, while Daniel Benton's Andor Capital management has a portfolio of 2 million shares.

Comparing Facebook to its Peers

Peers for Facebook include Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Yahoo (YHOO) and Zynga (NASDAQ:ZNGA). Google is comparatively cheaper than Facebook on a forward P/E of 17.27. While analysts expect gains next year, the consensus is that the company has to answer questions concerning the mobile sector. The stock has witnessed an explosive growth since last year, rising over 50%. Google has also seen earnings of $9.56 per share in its latest report, but Wall Street was looking for earnings of roughly $10.78 on revenues of $14.42 billion. Analysts expect respectable earnings next year, so they estimate the EPS to rise to 51.39.

Even though Microsoft has a trailing P/E of 12.17, it is estimated to be cheaper at a forward P/E of 10.36. Microsoft recently announced a fourth quarter revenue of $19.90 billion, a 7% increase over the same period in the year prior. However, the company badly missed analyst estimates of $20.7 billion. Consequently, shares fell 11% on the earnings news. Microsoft's revenues have been up in figures, but they have been modest in percentage points. Investors should be skeptical that the company can increase earnings at double-digit rates in the future. The stock is also slightly exposed to the overall economy with a beta of 1.04.

Yahoo features a lower beta at 0.83 and could be a pick for investors worried about a potential bear market. The company did see strong earnings in its last quarterly report compared to the second quarter in 2012. It also shows some stability over the long term with a debt/equity of 0.91%. With a return on equity of 31.55%, Yahoo should be watched for a long-term investment. However, revenue was $1.1 billion for the second quarter of 2013, a 7 percent decrease from the second quarter of 2012.

Zynga utilizes Facebook for a lot of its gaming traffic, but it has been struggling with profitability. In its last quarterly report, it recorded a net loss of $16 million, compared to last year's net loss of $22.8 million during the same quarter. Revenues fell 31% year-on-year. Additionally, there is talk that it could be acquired by another company.


I think Facebook should be given a close attention. It has found a way to increase its revenues through the mobile platform. A competitor such as Microsoft has not been able to achieve this. Hopefully, Facebook will also find a way to make the stock cheaper. I am impressed with the monetization plans it has put in place since the beginning of the year. But it needs to work more on its price multiples before it can be picked as a long-term investment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.