Facebook Inc. (NASDAQ: FB) has erased the memory of the debacle of its first week as a public company. It has also shed worries that it could not get its members to use its services on portable devices. Facebook has left all of that behind to the tune of a 40% increase in its share price in 2014.
Source: courtesy of Facebook Inc.
Facebook’s current market cap, at a share price of $81, is $225 billion. That is higher than Coca-Cola Co.’s (NYSE: KO), Verizon Communications Inc.’s (NYSE: VZ) or Bank of America Corp.’s (NYSE: BAC). Each has revenue many times Facebook’s. Facebook shares are the ultimate market bet on the future.
Facebook’s revenue in the third quarter was only $3.2 billion, and its net income just $806 million. That is not a very good margin, as tech companies go, but its top line and bottom line are growing at 50%. Facebook’s argument for its market cap is its 1.35 billion monthly active users. The figure grew 14% from the same period a year earlier.
That slow grow of monthly active users may be the reason that Facebook’s shares have started to flatten at the end of 2014. The price is barely better than it was in mid-October.
Pessimists about Facebook’s future point to Twitter Inc. (NYSE: TWTR) and Instagram. Presumably, people use more than one of these services. Those anxious about Facebook’s future are more concerned about how much time people spend using is competition than raw member account figures.
ALSO READ: Why Another Analyst Says to Buy Twitter
Finally, the question about whether advertisers will find Facebook an ideal medium for their marketing messages is up in the air. One single television company — CBS Corp. (NYSE: CBS) — has larger revenue than Facebook. Also, CBS has a very modest portion of the ad revenue that goes to U.S. media. The ladder Facebook has to climb is high. The trust marketers have in new media is limited so far; thus, Facebook’s extremely modest revenue.
The next 40% growth in the value of Facebook shares will be much more challenging.
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