Facebook's Mobile Monster: What Wall Street's Thinking (Update 2)

Updated from 9:52 a.m. EST to include thoughts from Topeka Capital Markets analyst.

NEW YORK (TheStreet) -- If there were any concerns about Facebook's (FB) mobile advertising revenue, those concerns can be put to bed.

Faceboook reported fourth-quarter earnings that surged past Wall Street estimates, as the world's largest social network earned 31 cents a share on $2.59 billion in sales. Facebook is now firmly an advertising giant, with revenue from ads surging 76% year over year to $2.34 billion. Perhaps even more impressive is the fact that Facebook's mobile ad revenue now generates over $1 billion in revenue per quarter ($1.24 billion this past quarter), despite having only just become a part of the company's business some 8 quarters ago.

Analysts surveyed by Thomson Reuters were looking for 27 cents a share on $2.33 billion in revenue.

Facebook shares were surging in early Thursday trading, gaining 15.9% to $62.05.

FB ChartFB data by YCharts

The Menlo Park, Calif.-based social network was exceptionally confident regarding the results and the future, as CEO Mark Zuckerberg talked about the company's long-term plans on the conference call. "Our plan is to continue focusing on improving quality, since we think this is the best way for us to improve the experience for people on Facebook, returns for advertisers, and our own revenue, as well as achieving our long term goal of providing ads that are as relevant as organic content," Zuckerberg said on the call.

Zuckerberg also said 2014 will be a year for new and engaging mobile experiences. We've already seen some of that, as the company unveiled Paper this morning, "a new app that helps you explore and share stories from friends and the world around you."

Facebook ended the quarter with 1.23 billion monthly active users (MAUs) and with more than 757 million daily active users (DAUs), up 22% year over year. Though the company did not address concerns about teens fleeing the service, CFO David Ebersman noted photo sharing social network Instagram, which the company owns, has seen its user base double over the past year. Facebook ended the quarter with 945 million MAUs, including 556 million DAUs, up 49% year over year.

Analysts by and large were supremely positive on the quarter, with several raising price targets sharply. Here's what a few analysts had to say:

JPMorgan analyst Doug Anmuth (Overweight, $80 PT)

"Facebook reported strong 4Q revenue growth along with significant improvement in margin as advertiser demand for social ads continues to build. The company delivered revenue and EBITDA 10% and 20% above our estimates and concerns about what Facebook would say on teen engagement, ad load increases, and opex growth did not play out."

Credit Suisse analyst Stephen Ju (Neutral, $65 PT)

"Mobile revenue once again was the highlight, as it grew 41% sequentially to $1.24b vs CS $1.21b. Growth in desktop advertising revenue was also better than expected, as pricing strength from FBX and increased mix of newsfeed ads more than offset a decline in impressions. We have increased our desktop revenue growth estimate, while moderating our cost of revenue forecast as Facebook begins to realize leverage as a result of investments in data center efficiencies. We maintain our Neutral rating on valuation."

UBS analyst Eric Sheridan (Buy, $72 PT)

"We expect Facebook to remain one of the best performing stocks in our universe post this earnings report. It remains very early days in the growing importance of Facebook as a global advertising platform. As a result, investors can expect above digital advertising growth rates in the coming years while margins should produce excellent ROIs. Looking forward, we take a conservative approach to operating estimates and don't roll forward all of the incremental pricing and margin benefits from Q4 (remember that Facebook will begin to face tougher revenue & margin comps in Q2/Q3). That being said, the current velocity of the business momentum is difficult to ignore. Going forward, we see Facebook as a core large cap Internet holding for excellent revenue growth at reasonable multiples to growth."

Cantor Fitzgerald analyst Youssef Squali (Buy, $67 PT)

"Facebook reported very strong 4Q:13 results with revenue/NEPS comfortably exceeding consensus estimates, on accelerating growth. Mobile easily surpassed the $1B mark ($1.25B) for the first time. FB remains a favorite stock of ours given the company's position as the largest/most-engaged mass reach Internet platform for advertisers, with successful mobile ad formats, and unmatched targeting potential, at a relatively compelling valuation still. We are adjusting our estimates and PT to $67 from $65, while maintaining a BUY rating."

Oppenheimer analyst Jason Helfstein (Outperform, $70 PT)

"We are raising our price target from $62 to $70, following stronger 4Q results and higher '14 and '15 EBITDA estimates. 4Q upside was driven by higher monetization. US and Intl. rev/DAU accelerated vs. 3Q, driven by higher pricing, as Mobile ad yields are above Desktop. No mention of issues with teenage usage. Model does not assume revenues from Instagram or auto-play videos in 2014. However, newsfeed algorithm changes should increase advertiser spending. Raising 2014E revenue and EBITDA by 6% and 9%, respectively; however, faster than expected US revenue growth negatively impacts tax rate, causing 3% reduction in non-GAAP EPS. Maintain Outperform rating."

Topeka Capital Markets analyst Victor Anthony (Buy, $75 PT)

"Facebook delivered an impressive quarter with revenue and Adj. EBITDA that was 10% and 20% ahead of our estimates, respectively, and Adj. EPS that was 4c above our estimates. The upside was driven primarily by higher pricing on newsfeed ads and higher than expected gross margins. We have increase our estimates on the better ad trends. Our price target increased to $75 from $67 on our higher estimates. We continue to recommend purchase of the shares as the product cycle (video ads, Instagram monetization), coupled with better monetization of existing ad units (co. focused on quality), should lead to upside to consensus estimates."

--  Written by Chris Ciaccia in New York

>Contact by Email.

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