One Factor Driving Facebook (FB) Stock Down Today

NEW YORK (TheStreet) -- Shares of Facebook  (FB) dipped 0.52% to $77.49 in morning trading Tuesday after MKM Partners issued a research note and said Twitter's  (TWTR) advertisements are outperforming Facebook's.

MKM notes several major ad agencies have reported better ad performances on Twitter compared to Facebook. Omnicom Group (OMC) has reported up to eight times better click-through rates for Twitter, while WPP and Publicis/Starcom  (PUBGY) have also noted great success on Twitter and each have signed nine-figure spending agreements with the social media company.

But MKM remains bullish on Facebook's growth in revenue per user (RPU). The firm said Facebook's RPU ramped up to 45% to an annualized run-rate of $8.45 in the first six months of 2014, while the U.S. is up 58% to a run-rate of $26 per user. This is up from 29% RPU growth in 2013. MKM said the consensus for Facebook implies an RPU expansion to $14 by 2016 with the U.S. at $39.

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Twitter's RPU run-rate was $4.60 after the second quarter, with the U.S. at $14. Twitter has narrowed the RPU gap with Facebook, as its RPU is now slightly more than half of Facebook's, compared to 40% one year ago.

Separately, 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 stock itself is trading at a premium valuation."

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

  • FB's very impressive revenue growth greatly exceeded the industry average of 19.9%. Since the same quarter one year prior, revenues leaped by 60.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • FB's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 12.48, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has slightly increased to $1,341.00 million or 1.43% when compared to the same quarter last year. Despite an increase in cash flow, FACEBOOK INC's cash flow growth rate is still lower than the industry average growth rate of 17.66%.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. 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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