This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Facebook: Spending Like a Drunken Sailor?

In an interview with TheStreet, CFO Ebersman said the company ramped up expenses 82% year-over-year and plans to increase them even further as Facebook invests in its people and infrastructure. "Our key issues are investments in our people [Facebook ended the quarter with over 4,600 employees] and infrastructure," Ebersman said, over the phone. "We are investing in engagement and monetization, and we're showing the results."

One of those initiatives is Gifts. Facebook recently unveiled a way to send gifts to your friends on the platform, most in the $30 and under price range. BMO Capital Markets analyst Daniel Salomon had been expecting Gifts would help Payments revenue, which came in at $256 million for the quarter. "We had been looking to Gifts for help, but management tapped-down expectations, and we have lowered our revenue estimates for it," Salomon noted, in a research report. He downgraded shares to "market perform" with a $32 price target. On the call, Zuckerberg tempered expectations for Gifts, but Salomon noted that any expectations for Gifts to improve would make him get more "proactive" on the stock.

Not all was negative for the quarter, though as Facebook beat estimates, led by higher advertising revenues. The social networking giant reported non-GAAP earnings of 17 cents a share on $1.585 billion in revenue, as the company's top line jumped 40%. Revenue from advertising was up 41% to $1.33 billion, accounting for 84% of total revenue. Mobile revenue represented 23% of advertising revenue in the fourth quarter, up from 14% in the third quarter.

Analysts surveyed by Thomson Reuters expected Facebook to earn 15 cents a share on sales of $1.53 billion in the fourth quarter.

Citi's Doshi noted that the company's mobile revenue run-rate is now $1 billion plus for the year. On the conference call, Sandberg noted that Facebook Exchange (FBX) is not yet available on mobile. "We think FB is showing revenue acceleration due to a mobile pricing tailwind, while other companies, such as Google, are facing mobile pricing headwinds," she said.

Jeffries analyst Brian Pitz believes that FBX could be a huge driver of revenue over the next twelve months. "During 2012, we believe Facebook will generate close to $4B in revenue off its standard display ad units, which appear on the right side of the page (aka the right rail). This is the same inventory that will be sold on FBX. FBX will allow real-time-bidding (RTB), and will also enable retargeting. Retargeting ads will generate CPC/CPA multiples higher than the ads they displace," Pitz wrote in a note. He downgraded Facebook to "hold," taking down the price target to $30 from $32.

Facebook is undoubtedly in heavy investment mode right now, and has tapered expectations for its new initiatives, including FBX, Gifts, Graph Search, etc. While Wall Street is worried about the short term, Zuckerberg and his team are looking at the long term. Considering that the CEO has taken Facebook from being a hang out for college kids in 2004 into a $60+ billion business in 2013, I would say he probably knows what he's doing.

Interested in more on Facebook? See TheStreet Ratings' report card for this stock.

-- Written by Chris Ciaccia in New York

>Contact by Email.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FB $117.58 0.00%
GOOG $693.01 0.00%
AAPL $93.74 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs