Facebook (FB) has been on a tear over the past three months, with FB stock up a sizzling 20%.
But on Wednesday evening, shares finally hit a wall.
The release of second-quarter Facebook earnings halted Facebook in its tracks, though it certainly wasn’t the nightmare met by fellow social company Twitter (TWTR) the previous night. FB stock was off some 3% in early after-hours trading.
The early details: Facebook earnings for Q2 came to 50 cents per share, topping Wall Street estimates for 47 cents per share. Revenues were an even thinner beat, with a figure of $4.04 billion just topping the consensus expectation for $3.99 billion. Beats — but apparently not big enough beats to sustain Facebook’s momentum.
The Facebook earnings report actually had a number of positives that investors seemed to be ignoring.
While FB is massive, the company somehow continues to find ways to pump up user growth. On a year-over-year basis, daily active users jumped by 17% to 968 million, while monthly active users were up 13% to 1.49 billion. For perspective, FB added more than 190 million net MAUs, which is more than half of Twitter’s total MAUs (304 million, excluding SMS users).
The main driver for FB stock continues to be mobile … and there’s nothing to be concerned about on this front, either. Mobile DAUs surged by 29% to 844 million, and mobile MAUs were up by 23% to 1.31 billion. In all, 76% of advertising revenues come from mobile sources, up from 62% on a year-over-year basis. Not bad considering that three years ago, Facebook didn’t have a mobile business.
Engagement also remains solid. According to Facebook CFO David Wehner, users spend a whopping 46 minutes per day on Facebook, Instagram and Messenger, on average. In fact, these offerings get one out of every five minutes of smartphone use in the U.S.
Of course, this growth doesn’t come cheap. Quarterly expenses spiked 82% year-over-year to $2.77 billion, and Facebook’s capex projection for 2015 is $2.5 billion to $3 billion, up from $1.8 billion last year. Still, FB has a history of making the right calls on its expenditures.
Take WhatsApp, for instance. When Facebook struck a deal to buy WhatsApp back in February 2014, FB shelled out more than $19 billion for the messaging app, which had about 450 million users. Now, WhatsApp’s user base is more than 800 million. (Interestingly enough, Twitter has a valuation at roughly the same as for the WhatsApp’s deal but has only a fraction of the user base.)
And the $1 billion deal for Instagram? While mocked once, it now looks like a downright bargain, with Instagram boasting some 300 million users.
So the question is, what is up with Facebook stock right now?
It’s hard to tell exactly what investors are upset with, so this could be a simple matter of Wall Street selling the news.
But even with its recent run-up, the valuation of FB stock isn’t out of whack. Facebook is trading at about 36 times forward earnings, which compares to about 46x for Twitter and 69x for LinkedIn (LNKD).
That’s not bad for the overwhelmingly dominant player in the mobile/social media world – one that still is finding ways to grow despite its already massive reach.
For investors looking at this category, FB stock is a good choice.
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.