Facebook (FB) Still Has It in the Numbers That Matter

In this market, stocks are punished for missing earnings. So why is it when Facebook (FB) beats estimates the stock starts to sell off?

Facebook (FB) Is Bigger Than China, but Wall Street Doesn't CareIronically, the reason is that FB regularly beats earnings, so its numbers have to be impressive to outpace analyst estimates.

In that regard, there are two acronyms FB cares about: DAUs and MAUs. The former being daily active users — how many people log into their Facebook accounts daily — and monthly active users, which are people who log in at least once a month.

If these two number are rising, FB is doing well.

Facebook reported 968 million DAUs for June, an increase of 17% from its second quarter last year, and 844 million mobile DAUs, up 29% in the same time frame. As for MAUs, Facebook didn’t disappoint: there were 1.49 billion MAUs by the end of June, a 13% year-over-year increase, and 1.31 billion mobile MAUs, a 23% YoY.

Signing up new users is certainly important as well, but at this point, half of the world’s Internet users are on Facebook. If FB were a country, China would outsource work to it.

Advertisers go nuts over those kinds of numbers, especially in mobile, and that’s where Facebook is rapidly growing.

Mobile advertising represented 76% of advertising revenue for Q2 2015, up from 62% from last year. The market should absolutely love that kind of growth!

But numbers are a double-edge sword. Some are saying that the selloff was due to another undesirably impressive number — expenses. That figure was up 82% for the quarter.

Don’t join the selloff party yet, though; that number it isn’t as bad as it seems. While FB has sunk boatloads of money into its new Texas data center, it has gone a long way in helping the site operate reliably with a user base bigger than Christianity.

Facebook’s also sunk a lot of money into similar projects and upgrades for its messaging service WhatsApp, as well as Instagram. The latter being a phenomenal growth platform capturing the affections of millennials and younger Gen X’ers.

Many younger social media users view Facebook as a platform for older generations, opting for Instagram instead. No harm, no foul: This actually helps Facebook segment its market even more finely for advertisers.

But the increased spending proved detrimental to net income on a GAAP basis, which fell 9% YoY.

Facebook, however, doesn’t expect its expenses to be ongoing, and predicted that expenses will decline 60% over the next quarter. We’ll see if Wall Street comes around on FB when that happens, or if the Street buries it under its lofty expectations.

Final Thoughts

Early next year, the Oculus Rift, Facebook’s entry into the soon-to-be enormous virtual reality market will hit shelves. The expectations will be undoubtedly high. But the one trend we see with Facebook is that Mark Zuckerberg isn’t afraid of throwing money around in the markets he knows he can conquer. VR is a $30 billion biggie.

It certainly doesn’t help your quarterly earnings when you drive up expenses like Facebook did in the quarter, but Zuckerberg is clearly focused on the long term by beefing up the reliability of its network. After all, a network outage or cyber attack would lose Facebook a lot more long-term value than a few tough trading days in the market.

Simply put, the numbers that really matter beyond day trading are on track. And FB is set to start the second half of the year on the right foot.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/fb-social-media-stocks-tech-stocks-internet-stocks/.

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