NEW YORK (TheStreet) -- Facebook (FB) reported its third-quarter financial results Wednesday afternoon after the market closed. By first accounts, the business looked good. According to a research note, Canaccord Genuity analyst Michael Graham increased his target price to $62 from $60 and reiterated his buy rating. He also increased his 2013 and 2014 EPS and revenue estimates.
While everything looks great according to the numbers, Graham cautioned that margins may be affected as the social network will need to spend more R&D money to efficiently monetize its strongest growing segment, mobile advertising.
But this rosy outlook certainly did not reflect the mood of traders. The initial knee-jerk reaction to the numbers was extremely positive, and the stock price shot up beyond the implied move. But, as the conference call wore on, there were a few gotchas, in particular the apparent flight of teenage users from the ubiquitous social platform. After that, the stock price plummeted, as much as 1% lower at the close.
The morning after, Facebook's price dropped even further, and whipsawed about, along with the broader market until it finally gained some footing and closed up $1.20 for the day, or 2.44%. The stock was up 1.88% to $51.19 shortly after market open on Friday.
The comment about teenagers was a huge surprise, as investors know advertisers see this as a huge opportunity lost before it can even be realized. I also suspect that traders were still a bit tattered by the Fed hinting at a premature end to QE3 just a couple hours prior to the earnings call.
It is becoming clear that many investors are still not entirely convinced that this growth in advertising can be sustained. There's the lingering concern that some other disruptive technology or competitor may appear on the horizon, and bite into Facebook's fragile and perhaps de minimis revenue model.
In the early days of the company, when subscriber growth was increasing at exponential rates, kids were the primary users, despite the age restrictions for user accounts. The kids grew older, and slowly adults became more interested in Facebook. There are plenty of people out there eager to see what others are up to and also devote long hours to updating their statuses.