Other analysts upgraded Facebook's shares, citing impressive mobile results and a valuation more in line with the company's earnings trajectors. Mark Mahaney of Citigroup upgraded Facebook to a 'Buy', citing a better link between Facebook's fundamental earnings and its market value.
"What investors have for the first time since the FB IPO is fundamentals acceleration WITH a reasonable valuation," writes Mahaney in the upgrade, noting a price-to-earnings ratio of 30 and an earnings growth rate of 30%. Mahaney also highlights that growing fee revenue, in spite of a 9% decline in sequential revenue paid by Zynga, in concert with monetization efforts, minimize two of Facebook's biggest risks headed into earnings.
Specifically, the question was whether Facebook's usage and revenue generation trends could bolster its earnings outlook headed into 2013, regardless of whether top and bottom line numbers hit Wall Street estimates.A strong investor reaction to earnings released after the market close on Tuesday indicates Facebook's been able to both impress Wall Street on earnings numbers and the company's overall direction. After an initial stock surge after earnings were released, Facebook added to gains as executives detailed the beat on an earnings call with analysts, pushing shares over 10% higher on Tuesday evening. After a slew of analyst upgrades on, Facebook's shares continue to march higher, rising over 19% in Wednesday trading. Facebook highlighted highly anticipated new platforms like Facebook Exchange and its rebuilt iOS mobile app as drivers of strong mobile growth on the earnings call. [Facebook Exchange lets advertisers tailor ads on the social network based on user interests and is seen as a key piece of monetization efforts.] Zuckerberg attributed mobile ad revenue gains to Facebook's commitment to the platform and also said a faster iOS mobile app helped drive surging usage. "I want to dispel this myth that Facebook can't make money on mobile," said Zuckerberg on the earnings call. He also highlighted that Facebook will show continued improvement in mobile as the company focuses its efforts on other app improvements for Google Android devices. Meanwhile, Sheryl Sandberg detailed how companies like Samsung and McDonalds (MCD) have seen success on the company's Exchange platform since a September launch, in comments that helped to push Facebook's stock higher through the analyst call. The bull case on Facebook has long centered on the network's still-unquantifiable earnings prospects and its growing popularity, but investors should also take stock of obvious risks to the company's share prices through year-end. In particular, Facebook faces a lockup expiration, where $1.2 billion of shares -- 700 million shares in total - could hit the stock market in the next three months, noted William Bird of Lazard Capital Markets, in a note prior to earnings. For now, Facebook, has rewritten the script on its mobile efforts, giving investors and Wall Street analysts new reason to consider the stock after equity investors all-but left the social network for dead after its IPO. For more on Facebook, see why the company's valuation shouldn't be a trick question on Wall Street. Also see why a venture capital investor suggests thinking long term on Facebook after its weak post-IPO performance. Follow @agara2004 -- Written by Antoine Gara in New York
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