Facebook Inc (FB): Don’t Bother Buying Facebook Stock NOW

Facebook Inc (FB) looks set to extend its post-correction rebound on the heels of its Q3 earnings report.

Facebook Inc (FB): Don't Bother Buying Facebook Stock NOWFacebook stock was up some 3% to all-time highs around $107 following its report out Wednesday after the bell.

The message from this earnings release: Facebook continues to benefit from the mobile megatrend, and it’s also getting traction with the video business.

Facebook Earnings for Q3

Facebook posted third-quarter earnings of 57 cents per share, which was enough to beat Wall Street consensus estimates for 52 cents per share. That came on revenues that jumped by 41% to $4.5 billion, also better than expectations for $4.37 billion.

No surprise, then, that Facebook stock is getting some juice.

Despite its massive scale, FB continues to rack up extremely strong gains on the user front. In Q3, monthly active users increased by 14% to 1.55 billion, and mobile MAUs jumped 23% to 1.39 billion.

And, breaking down MAUs across Facebook’s other properties:

  • Instagram: 400 million
  • WhatsApp: 900 million
  • Messenger: 700 million

Other social media operators — we’re looking at you, Twitter (TWTR) — should be envious. Facebook gained 60 million users in Q3, while its light-blue counterpart gained just 3 million (on a smaller overall base).

To find new avenues of growth, FB has gotten creative and targeted users with lower-bandwidth access to the Internet via its Facebook Lite offering, which now sports 50 million users.

Lastly, Facebook even managed to pick up a ton of traction on its videos, with average daily video views coming to 8 billion per day. Roughly 500 million users watched videos on Facebook on a daily basis!

Still, Facebook Stock Isn’t a Buy

Growth is costly at FB, however.

Operating costs spiked by 68% year-over-year to $3.04 billion. As a result, there was a drop in non-GAAP operating margins from 57% to 54%.

On the flip side, FB has plenty of leverage and was able to produce strong free cash flows of $1.41 billion.

Besides, CFO Dave Wehner actually warned that this year would involve heavy investments — likely why Facebook stock hasn’t been affected much by the escalation in costs.

That said, while I have been bullish on Facebook stock for some time, new money might want to wait for a better price. FB was already trading at a hefty 38 times forward earnings, which compares to a much more sober 21X for Alphabet (GOOG, GOOGL).

The markets have been volatile of late. I would look for another broad move to the downside to provide a better entry point for Facebook stock — just like you could’ve gotten during the most recent correction.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll 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.

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