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- FB is suitable for the Enterprising Investor following the ModernGraham approach.
- According to the ModernGraham valuation model, the company is overvalued at the present time.
- The market is implying a 44.04% earnings growth over the next 7-10 years, which is not sustainable over such a long period of time.
- Facebook is currently developing a separate application for work-oriented purposes.
- Facebook at Work may drive productivity gains, despite the controversy surrounding privacy and socialization in the workforce.
- Even if Facebook at Work doesn't become a huge success, the cost will be minimal and the company will learn from the experience and move on.
- Facebook is continuously trying to locate emerging revenue streams to lower its dependency on ad sales and generate revenues outside of its core business.
- Facebook targets the corporate market for non-ad revenues by offering professional services in its new professional social network and internal corporate communication application.
- Facebook has the knowledge to execute these two initiatives successfully and grow its non-ad revenues from adjustment markets to its core business.
- Facebook is testing a separately hosted version of its site for use at work.
- The potential move is misunderstood by some as a direct attack on LinkedIn.
- Facebook At Work is simply a move to increase the amount of time users spend on its core product each day.
Facebook: Rumored To Encroach Into LinkedIn's Territory - Will It Acquire To Do So?
- Facebook has been rumored to be developing a professional site that would present a threat to LinkedIn.
- The rumor appears to have some credence and fit into management's guidance for expenses to rise between 50% and 75% next year.
- Facebook has a history of acquiring companies and integrating their technology into their new platform and there is a possible target for Facebook to create a LNKD competitor.
- Facebook has altered its news feed and both users and shareholders will benefit.
- The vast gap between the number of business pages and those pages that pay for ads will quickly close.
- There is plenty of room for ad prices to increase while still delivering superior ROIs for advertisers.
What's Inside Facebook's Oculus Rift? Investment Opportunity
- Facebook has a vision for virtual reality, and will likely be aggressive in throwing development and investment dollars into the industry.
- The VR market is estimated to become a $7 billion industry by 2018 with Facebook set up to be a dominant player for the hardware and content.
- I agree with Mark Zuckerberg's view of VR's future marketability, but the critics of the early-stage technology are correct. New components will be built with corresponding investment needed.
- Facebook's Oculus Rift is due to be released to the broad consumer market some time in 2015 alongside other VR devices within the next year.
- Sophic Capital has identified several companies that build components of the Rift which will benefit from the consumer release and as new generations of the product are developed.
Facebook Is Undervalued Based On The Company's Growth Outlook
- Facebook's growth is extraordinary, in the last quarter revenues are up 59%, user numbers are still growing at a double digit pace.
- Facebook's fundamentals look good: High (and growing) margins and returns on capital, no debt.
- Facebook's earnings multiple is at an all time low.
- The Graham formula suggests that Facebook is trading at a discount to its intrinsic value right now.
- The DCF method suggests that Facebook is undervalued if the long term EPS growth rate exceeds 5% annually.
- Facebook announced that it has over 500 million users on Messenger now.
- Passing this threshold has increased my conviction that Facebook could enter two new industries.
- I previously pointed out the possible plans Facebook has to leverage its Messenger application and Whatsapp acquisition.
Average Revenue Per User Keeps Delivering For Facebook
- In Q3, Facebook boosted ARPU again.
- While growth has been slowing in some important areas, market saturation won’t stop Facebook.
- Facebook is modifying its system to drive ARPU even higher. This will translate well into foreign markets.
- Despite a solid quarter, Facebook must deal with stagnant user growth in the U.S., Canada and Europe.
- Facebook continues to thrive on mobile.
- Relatively weak Q4 guidance should trigger caution among investors.
- Facebook's $200 billion market cap has been used to management's advantage since its IPO.
- Acquisitions like WhatsApp and Oculus have been achieved with mostly stock.
- FB's rising shares outstanding and history of stock generosity are all big risks facing current shareholders.
- Recent earnings for Facebook showed increased spending; the stock saw a nine percent drop.
- Given Facebook's current position as a leader in social media/advertising, the company's revenue should continue to stay strong.
- Recent acquisitions WhatsApp, Oculus and Instagram - while currently weighing on earnings - could begin to deliver for shareholders soon.
- Sitting on a solid five quarters of beating analyst estimates for earnings and revenues, Facebook is still looking solid in 2014 and beyond.
- One tech columnist worries that Facebook's balance sheet poses a "massive risk" to shareholders.
- Facebook is accumulating a large account of "goodwill" which is vulnerable to impairment.
- Because goodwill is only an accounting contrivance, its writedown would not pose new risk to shareholders.
- The company's long-term objectives and strategy justify the large expenditures.
- The management team at Facebook has a proven ability to consistently deliver value to shareholders.
- Facebook continues to deliver on its core strategy and fills in any gaps along the way.
- The stock was oversold after Q3 earnings, which represents a buying opportunity.
Update: Facebook Q3 Earnings - Cooler Heads Should Prevail
- FB beat consensus on the top and bottom lines but shares are down.
- The guidance for 2015 wasn’t quite what investors had hoped for.
- However, we have a longer-term focus and believe the outlook is still robust.
- We have noted before that it takes investment to drive growth, and FB is still in investment mode.
- Facebook and Twitter may go through a period of consolidation.
- This is healthy, as the two stocks have seen significant runs.
- Fundamentally the two businesses are solid and have meaningful growth prospects going forward.
- However, the short term has been unpredictable, therefore investors have to buy-in with an ownership mentality.
Update: Facebook's Q3 Show It's Firing On All Cylinders
- Facebook delivered a very impressive quarter as far as growth in revenue and earnings.
- In spite of rising costs near term, the company is well positioned for long-term success and has a number of new initiatives that should drive growth.
- I'm happy to retain ownership of Facebook stock in my growth portfolio.
- Despite a solid quarter, Facebook stock sold off following the report.
- Investors were worried about rising costs and a tempered outlook.
- With the growth story still intact, the selloff may provide an interesting entry point.
Update: Facebook Q3 Earnings - Advertising Revenue Growth Encouraging
- Facebook’s advertising revenue for the third quarter was $2.96 billion, a 64% year-on-year increase.
- We believe the erosion of shareholder value from Facebook’s share dilution will be more than offset by the growth of advertising revenue.
- We’re now bullish on the stock post the third quarter earnings.
Tue, Nov. 18, 2:05 PM
- Continuing its efforts to build (in Mark Zuckerberg's words) "a pipeline of experiences" on mobile, Facebook (FB +0.3%) has created standalone Android/iOS apps for monitoring and interacting with one's groups.
- Group-related notifications are provided through the app, as is a Discover tab that recommends groups based on a user's interests. However, unlike with messaging, Facebook won't be removing Groups functionality from its core apps.
- The Groups launch follows the October release of Rooms, an app that allows users to create discussion spaces while logging in with pseudonyms.
- Separately, Hilliard Lyons' Stephen Turner has launched coverage on Facebook with a Buy rating and $92 target. Like others, Turner cites Facebook's ability to benefit from a shift in ad spend towards online/mobile channels - mobile still only accounts for 11% of U.S. ad spend vs. 25% of media time.
Mon, Nov. 17, 11:09 AM
- LinkedIn (LNKD -4%) is seeing profit-taking after the FT reported Facebook (FB -0.7%) is planning to launch a business-focused version of its core service that will support separate work accounts and feature collaboration tools. Enterprise social networking software vendor Jive (JIVE -5.9%) is also selling of.
- Salesforce (CRM -1.5%), whose Chatter business social networking platform has seen strong growth, is off moderately. The Nasdaq is down 0.4%.
- Facebook's service will be able to lean on the company's 1.35B-strong active user base, as well as its very high Web and mobile app engagement rates (much higher than LinkedIn's).
- At the same time, the offering will have to contend with corporate wariness towards Facebook (due to Facebook's historical consumer focus and reputation as a productivity-killer), as well as LinkedIn's established base of professional accounts (332M at the end of Q3) and the popularity of business social networking tools from the likes of Jive, Salesforce, Microsoft, and IBM.
Mon, Nov. 17, 2:09 AM
- Facebook (NASDAQ:FB) is developing a new website called "Facebook at Work" that will allow users to keep their personal profile separate from their work profile, FT reports.
- The new site will look very much like Facebook, with a newsfeed and groups, and will allow users to chat with colleagues, connect with professional contacts and collaborate over documents - a clear threat to rival LinkedIn (NYSE:LNKD).
Thu, Nov. 13, 3:10 PM
- The revised text includes passages noting Facebook's use of location data to provide business recommendations and other content, as well as its collection of transactional data. Facebook also notes users can opt out of receiving ads that are based on non-Facebook activity.
- Re/code's Peter Kafka observes Facebook's revisions pave the way for new payments/e-commerce services, as well as location-based ads. Facebook has already been testing a Buy button that allows users to complete purchases on its site/apps, and has signaled payments will be a major part of its efforts to monetize Messenger.
Mon, Nov. 10, 1:37 PM
- Less than seven months after Mark Zuckerberg disclosed Facebook Messenger (FB -0.6%) had 200M monthly active users, Facebook states Messenger has topped 500M.
- The massive growth, of course, was driven by Facebook's decision to remove messaging functionality from its core apps, thereby forcing users to download the standalone Messenger apps. A backlash ensued; the latest version of the iOS app still has a rating of only 1.5/5 stars in the App Store due to users upset about the new requirement (its cumulative rating is 3/5 stars).
- Nonetheless, the requirement has led Messenger's MAU count to soar past that of all other mobile messaging platforms save for Facebook-owned WhatsApp (has over 600M), and grow to equal nearly 40% of Facebook's Q3-ending MAU base of 1.35B.
- Facebook put ex-PayPal chief David Marcus in charge of Messenger in June, and has suggested it plans to monetize the platform via payments.
Sat, Nov. 8, 10:12 AM
- "There's this inherent conflict ... Are we trying to optimize news feed to give each person, all of you guys, the best experience when you’re reading? Or are we trying to help businesses just reach as many people as possible? And in every decision that we make, we optimize for the first," says Mark Zuckerberg (NASDAQ:FB) addressing concerns from businesses that their Facebook organic reach (i.e. their ability to reach followers without paying for ads) is steadily declining.
- Zuck observes the average Facebook user is eligible to see ~1,500 news feed updates per day, but only ends up seeing ~100 - Facebook's algorithms are largely responsible for picking out which ones are seen. As users add more "friends" and follow more pages, their eligible content grows, and their odds of seeing a particular post declines.
- The upshot? Businesses increasingly need to buy Facebook ads in order to keep the rate at which their content is seen from declining. And since the number of posts viewed per user (ads or otherwise) is staying fairly constant, growing ad demand serves to boost ad prices.
- Zuck's remarks come as Facebook updates its news feed controls to make it easier for users to unfollow users, pages, and groups, and gives them the option to see less of particular users/pages/groups without unfollowing them. Affected businesses will, of course, end up with less organic exposure.
Thu, Oct. 30, 3:54 PM
- Following 6 months of testing, Instagram (FB -2.4%) has begun showing autoplay video ads to its 200M+ active users. Disney, Activision, and Banana Republic are among the first buyers. Brands are able to target based on age, gender, and country.
- As with its photo ads, Instagram is reviewing all material to make sure it doesn't (in Instagram's view) damage the user experience. Facebook has been cautious with its news feed video ads as well, and has said it doesn't expect huge 2014 sales.
- Instagram announced a $100M deal with ad giant Omnicom in March. A $500M May deal between Facebook and Omnicom rival Publicis covered both news feed and Instagram ads. Observers have noted Instagram's maximum video length (15 seconds) matches with the length of shorter TV ads.
Wed, Oct. 29, 5:23 PM
- Facebook's (NASDAQ:FB) shelf registration paves the way for the company to sell stock, debt, or warrants through future offerings, should it wish to.
- The filing comes a day after Facebook guided for its non-GAAP costs/expenses to rise 50%-70% in 2015.
- The social networking giant had $14.25B in cash/marketable securities at the end of Q3, and produced $2.56B in free cash flow over the first 9 months of 2014.
- FB -0.5% AH; shares fell 6.1% in regular trading.
Wed, Oct. 29, 9:15 AM
Wed, Oct. 29, 7:56 AM
- Buy the dip, says Needham's Laura Martin, noting the company's focus on the long-term on the earnings call is giving investors the jitters about the short-term. The upped expenses guidance for FY2015, she says, suggests Facebook (NASDAQ:FB) will be reinvesting profits in longer-term opportunities.
- "Facebook’s execution continues to be strong and we believe very few companies in the world have the reach, the audience engagement and the monetization opportunity that Facebook has in front of it today," says Sterne Agee's Arvind Bhatia, reiterating a Buy rating and $85 price target.
- Similar sentiments are voiced by Goldman, Cowen, Susquehanna, Evercore, and SunTrust.
- Shares -7.7% premarket
- Last night's earnings coverage
Tue, Oct. 28, 7:09 PM
- Facebook's (NASDAQ:FB) aggressive 2015 spending forecast isn't driven by any particular field, but by large investments in everything from the core service to ad tech to new products, CFO Dave Wehner insisted on the CC. He suggested much of the new spending will be on hiring. (live blogs: I, II)
- Price per ad soared 274% Y/Y in Q3, thanks in part to an overhaul of Facebook's right-hand column PC ads (they typically carry lower prices). With total ad revenue up "only" 64%, ad impressions fell 56% (fewer ads are shown on mobile).
- PC ad sales rose 11% Y/Y, but were flat Q/Q. Though payments/other revenue rose 13% Y/Y, payments volume from games fell 2% due to lower PC gaming activity (a negative for ZNGA, which is down 1% AH).
- Sheryl Sandberg notes only 11% of ad budgets are for mobile, and predicts improving inaccurate measurement systems (previous) will boost ROI and spending. She reiterates Facebook will take it slow in ramping Instagram and video ads, and that Facebook is aiming for Instagram to eventually have 1B users of its own (up over 4x from current levels).
- Mark Zuckerberg cautions Oculus is unlikely to see 50M-100M unit shipments in the next few years, but reiterates he wants Oculus' VR headsets to be a mass-market product long-term. He also states Facebook plans to make new investments in growing public content viewing/sharing, where its focus on privately connecting friends/family can make for a tricky balancing act.
- Facebook discloses WhatsApp (just beginning to monetize) had 2013 revenue of just $10.2M, and a loss of $138M ($98.8M from stock compensation).
- Other details: 1) Of the 33M MAUs added in Q3, only 6M came from North America and Europe. 2) ARPU rose to $2.40 from $2.24 in Q2 and $1.72 a year ago. North American ARPU ($7.39) remains an outlier. 3) 456M MAUs (34% of them) are mobile-only.
- FB -9.4% AH. Prior earnings coverage.
Tue, Oct. 28, 5:35 PM
- Facebook (NASDAQ:FB) guides on its Q3 CC for Q4 revenue to be up 40%-47% Y/Y; that's in-line with a consensus of 44.7% growth, and slightly below at the midpoint.
- The company now expects 2014 GAAP costs/expenses to rise 45%-50% (boosted by WhatsApp stock compensation expenses), up from a prior outlook of 30%-35%. It also forecasts non-GAAP spending will rise 50%-70% Y/Y in 2015 - CFO Dave Wehner calls 2015 a "significant expense" year.
- Live blogs: I, II
- Q3 results, details
Tue, Oct. 28, 5:35 PM
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Tue, Oct. 28, 4:19 PM
- Facebook's (NASDAQ:FB) ad revenue rose 64% Y/Y in Q3 to $3.2B, just a slight slowdown from Q2's 67% clip. Mobile was 66% of ad revenue, up from 62% in Q2 and 49% a year ago. Payments/other revenue rose 13% to $246M, faster than Q2's 9% clip.
- User growth slowed a bit: Monthly active users (MAUs) +2% Q/Q and +14% Y/Y to 1.35B, and mobile MAUs +5% Q/Q and +29% Y/Y to 1.12B. Q/Q growth was respectively 3% and 6% in Q2.
- Daily active users (DAUs) +4% Q/Q and +19% Y/Y to 864M. DAUs equaled 64% of MAUs, up from 63% in Q2 and 61% a year ago (higher engagement).
- GAAP costs/expenses +41% Y/Y to $1.81B, a pickup from Q2's 22% growth. R&D spend +65% to $608M, sales/marketing +61% to $374M, G&A +51% to $259M.
- Free cash flow +15% to $766M, less than net income of $1.15B. $482M was spent on capex (15% of revenue).
- FB -0.6% AH. Q3 results, PR, slides (.pdf)
Tue, Oct. 28, 4:02 PM
Mon, Oct. 27, 5:35 PM
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