Investors appeared to be expecting a lot ahead of the fourth-quarter Facebook Inc (NASDAQ:FB) earnings report, and they got it — Facebook put together a solid report.
But if Wednesday night’s trading action was any indication — FB stock was off by a couple percentage points — Wall Street apparently wasn’t just looking for good.
It wanted great.
Facebook Earnings
Fourth-quarter revenues surged 49% to $3.85 billion and helped power Facebook earnings of 54 cents per share of FB stock, up from 32 cents in the year-ago quarter. Both figures cleared analyst estimates of $3.77 billion and 49 cents per share, respectively.
Also making headlines: Facebook cleared the $10 billion mark for full-year revenues.
As expected, mobile remained the key driver for growth, accounting for about 69% of total ad revenues. And in fact, mobile continued to grow in importance — mobile represented 66% of revs in Q3 and 53% in the year-ago period.
No surprise here, though. Facebook provides advertisers with rich user demographics at a massive scale, all while launching new services, such as an ad network as well as development tools and analytics systems. These offerings have not only helped Facebook crank up sales, but it has made it even tougher for rivals including Twitter Inc (NYSE:TWTR) and SnapChat to keep up.
Facebook isn’t just increasingly business-friendly, though. FB continues to draw new users, with monthly active users hitting 1.39 billion, up 40 million from last quarter and 160 million from Q4 2013; that growth primarily has come from international. Moreover, its mobile user base expanded, to 1.19 billion as of the end of Q4.
Those users have been sucking up Facebook’s ramped-up video offerings, with FB delivering 3 billion view per day, compared to 1 billion in September.
So, with all that good news, why is FB stock so lethargic?
Problems With FB Stock
Not everything in the Facebook earnings report was peachy.
For one, that soaring U.S. dollar that has been plaguing American multinationals? Well, Facebook felt the pain too; if you factor out currency shifts, revenues actually would’ve improved by 53%.
But the biggest weight on FB stock was the spike in the company’s costs. It’s not cheap being a top player in mobile. Hiring expert coders is getting more expensive, and it’s costly to buy hot startups, whose value is often inflated by seemingly endless amounts of venture capital. Plus there are expenses for data centers and experimental initiatives like search, virtual reality devices (Oculus Rift) and Internet.org, which has the goal of providing Internet access to developing nations.
All told, Facebook’s costs jumped 87% to $2.72 billion, with a huge chunk of that coming from R&D expenditures.
These issues, combined with valuation concerns, make it difficult to be too bullish on FB stock right now. Shares are up 40% in the past year and trade around 40 times earnings; however, Facebook has been stuck in a range of $70-$75 since summer.
It appears increasingly likely that FB stock will need a major announcement — or a major earnings beat — to get over the hump.
Unfortunately for Facebook, its next report is now three months away.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
