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Summary

  • Through February, total minutes (PC + smartphone) increased 31% year over year, 2% above court-quarter results.
  • Facebook is not having as much trouble as feared in keeping and monetizing its users.
  • We also expect Facebook to revise upward guidance for revenue and consensus EPS estimates (excluding dilution from WhatsApp).

You either "like it" or hate it. For Facebook (NASDAQ:FB), there is no middle ground. A Huffington Post contributor recently called the company "The world's biggest waste of time." The article claims that Facebook is "just an advanced version of the electronic bulletin board." A Forbes contributor offered 7 reason to dump Facebook. Then fellow a seeking Alpha contributor recently argued that CEO Mark Zuckerberg is being too frivolous with its money. The article didn't mention the $1 billion Zuckerberg gave to charity last December.

It seems that no matter how much progress the social media company has made since its initial public offering in 2012, Facebook will never escape this kind of criticism. But with revenue growing in the January quarter by more than 60%, along with the company's mobile ad revenue growth, Zuckerburg has no reason to apologize for his actions.

From my vantage point, these recent opinions matter very little in the face of sound execution. Facebook continues to prove that concerns about "disengaged users" and worries over whether the company is as "cool" as Instagram have been overblown. On Wednesday, Facebook will look to build on its growth momentum when it reports first-quarter earnings. Mark Zuckerberg will have another chance to silence his critics and prove why he is one of the best young CEOs on the market.

On Wednesday, the Street will be looking for earnings-per-share of 24 cents on revenue of $2.36 billion. Essentially, earrings are expected to grow 50% year over year, while revenue is projected to grow by 62%. Given Facebook's dominant court-quarter performance, these numbers seem a bit conservative. It would not surprise me the list bit for Facebook to report revenue closer to the $2.38 billion.

The key in the revenue figure will be what Facebook does in terms of advertising revenue. In the January quarter, Facebook's advertising revenue surged 76% year over year. Estimating a more conservative performance of, say, 72%, we arrive at $2.14 billion. This means that advertising will represent close to 90% of Facebook's total revenue.

Next, in the January quarter, Facebook reported 6% year-over-year decline in payments/other revenues, which arrived at $241 million. Assuming a modest improvement in that area, and a stronger-than-expected surge in mobile ad revenue, it's entirely possible for Facebook to reach total revenue of $2.40 billion. This also assumes that desktop revenue, which has been on the decline, remains stable.

These numbers, if achieved, will support our belief in Facebook's ability to grow its mobile user base, in the face of still competition from Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Twitter (NYSE:TWTR). While Google and Twitter have had their own levels of success, Facebook's active user count continues to grow. Through February, total minutes (PC + smartphone) increased 31% year over year, 2% above court-quarter results. This was driven by a 40% increase year-over year in mobile minutes. Not to mention, the ratio of daily users to monthly users continue to improve.

As it stands, Facebook is not having as much trouble as feared in keeping and monetizing its users. And when you factor in Facebook's continuous product updates, we expect the company to remain committed to growing long-term profitability and user engagement. We haven't even mentioned Facebook's ambitions in areas like mobile payments. To say that this will be a positive catalyst going forward will be an understatement.

All told, I'm bullish on this stock in the long term. In the near-term, I expect the shares to jump as soon as the numbers are released and digested. We also expect Facebook to revise upward guidance for revenue and consensus EPS estimates (excluding dilution from WhatsApp). With the stock trading at around $63 per share, I project these shares to each $80 by the second half of the year.

Consider, of the 40 analysts that cover the stock, the media target is $74 and the high target is $90. With Facebook still trading at a P/E of 102, which is still 10 points below the industry average of 112, $80 won't be hard to reach.

Source: Why Facebook Is Heading To $80