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Jim Cramer's Action Alerts PLUS

Action Alerts PLUS

Facebook Beats the Street

BY Jim Cramer and Stephanie Link | 07/23/14 - 05:25 PM EDT
Action: FB

Facebook (FB:NYSE) reported second-quarter earnings this evening, beating the Street on both the top and bottom lines. The underlying metrics were strong and our thesis remains intact.

The shares rallied nearly 3% today going into the print, and they are up 27% from the April 28 lows and 31% year to date, so to be up as much as 4% in extended trading is impressive. But it's understandable because the story continues to get better -- total mobile exposure is improving, monetization is clearly happening, and the social network has yet to monetize its Instagram, WhatsApp and Oculus acquisitions, so there are future catalysts.

Facebook earned $0.42 per share, easily beating the $0.32 consensus. Revenue rose 61% to $2.91 billion vs. the $2.81 billion consensus. Advertising revenue was $2.68 billion, up 67% from a year earlier, or 65% on a constant-currency basis. This beats the $2.58 billion expectation and shows a 15% improvement over the year-ago quarter. Mobile advertising revenue is now 62% of total, up from 41% a year earlier. The company now has 1.5 million active advertisers with growth from new and existing ad customers, and that is across the board in various industries. It's clear that the strategies for personalized marketing and technology investments are bearing fruit and gaining scale advantages.

Daily Active Users (DAUs) totaled 829 million on average, up 19% from last year and 3.4% the previous quarter. This is slightly better than the expectation of 827 million. Mobile DAUs rose 39% year over year and 7.4% quarter over quarter. Monthly Active Users (MAUs) totaled 1.32 billion, a 14% increase from a year ago and 3.4% better than the prior quarter. This is slightly below some of the aggressive 1.4 to 1.5 billion analyst figures but, again, it still represents strong double-digit growth. Mobile MAUs improved 31% y/y and 6.2% q/q.

Payments and other fees were $234 million, up 9% from the same period last year, beating the $225 million consensus. Capital expenditures were $469 million, a touch less than the $478 million expected. Non-GAAP costs and expenses were $1.2 billion, up 18% y/y and ahead of the $800 million expectation. Operating margin came in at 59% vs. 44% y/y, slightly below the 60% to 61% expectation as expenses and investments continue to grow. Cash and marketable securities stand just shy of $14 billion, and free cash flow was $872 million.

Facebook shares are not cheap at 49x the price-to-earnings multiple on 2014 estimates and 39x on 2015's, but having just put up 60% revenue growth and strong mobile monetization with future catalysts in other parts of the business that are in their early stages (Instagram, WhatsApp and Oculus) the company continues to be a standout in growth and progress.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUS was long FB.

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