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Is Facebook A Buy?

|Includes: Facebook (FB)

Facebook went public on May 18 of last year, and it took the company about six months to start shedding the stigma associated with the worst IPO in the history of the world. It has been a long, painstaking process, but investors are finally starting to look past the debacle. About 6 months post-IPO, investors began to move back into the stock, the shares have spent most of their time bouncing between the $25-30 range since. This range may have been justified prior to 2013 Q1 earnings, but it is no longer. The earnings have received a mixed response from investors, initially driving the stock higher, and more recently pushing it back down. It is my opinion that the earnings were very positive, and therefore I am bullish on the stock.

First off, the financials were great. Revenue grew by 38% year-over-year to $1.46 billion, and advertising represented 85% of that revenue, a 43% year-over-year increase. That means Facebook is learning how to monetize its assets, something bears thought couldn't/wouldn't happen. The argument was that if Facebook inundated subscribers with ads, people would leave the site. Well that definitely hasn't happened because there has been a 26% and 23% increase in DAUs (daily active subscribers) and MAUs (YOY), respectively; and even more impressively, a 54% increase in mobile MAUs. In addition, Facebook's balance sheet is immaculate with a debt ratio of .22, and a debt/equity ratio of .28.

In terms of future growth, the company outlined some great catalysts in their latest conference call. The major growth opportunity will come in mobile. Facebook aims to become the go-to identity and distribution platform for developers, and they are well on their way: 81 out of the top 100 grossing IOS apps, and 70 out of the top 100 grossing Android apps are integrating with Facebook already. Their new "Facebook Home" product, which hasn't been fully launched yet, will serve as their operating base for a deeper venture into the mobile market. Facebook home is a family of apps that provide the user a Facebook based home screen on their phone through which they can engage in a "people first" mobile experience, but still continue to have access to all of the apps they've had on other platforms. This new product could be a game changer if accepted by the public, and it will be, because people won't just stop obsessing over the goings on of other people.

To conclude, Facebook is indeed, a buy.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FB over the next 72 hours.