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Why Facebook (FB) Is Up Today

NEW YORK (TheStreet) -- Facebook (FB) was rising 1.70% to $58.18 on Friday morning after the company made a significant announcement about its advertising structure.

Facebook announced Thursday that its infamous "Sponsored Stories," which include what seem like endorsements from users in paid advertisements to friends, will be gone as of April 9; however, this comes with the trade-off that the marketability of users' likes and shares in advertising on the site could become more prevalent.

The company began its Sponsored Stories in 2011.

The company also acquired Little Eyes, a start-up company based in Bangalore, India, for a reported $10 million to $15 million. Little Eyes, which has been in business for less than two years, crafts performance optimization tools for mobile apps. Those tools automatically track an app's consumption of system resources and then submit reports that developers can use to adjust the apps. Customers paid a subscription fee for Little Eyes' services, but those outside of Facebook may not be able to do so after June 30.

Little Eyes confirmed the acquisition in a blog post.

Facebook plans to move the seven-person engineering team to Menlo Park, Calif. to help improve the quality of its mobile apps.

TheStreet Ratings team rates FACEBOOK INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate FACEBOOK INC (FB) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • FB's very impressive revenue growth greatly exceeded the industry average of 9.2%. Since the same quarter one year prior, revenues leaped by 59.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although FB's debt-to-equity ratio of 0.04 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 10.37, which clearly demonstrates the ability to cover short-term cash needs.
  • Powered by its strong earnings growth of 950.00% and other important driving factors, this stock has surged by 95.39% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • When compared to other companies in the Internet Software & Services industry and the overall market, FACEBOOK INC's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: FB Ratings Report

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