Will Facebook Investors Start Worrying About Slowing Growth?

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After the markets closed Wednesday, Facebook Inc. (NASDAQ: FB) reported its fourth-quarter earnings. The social media giant had $0.54 in earnings per share (EPS) and $3.85 billion in revenue, against Thomson Reuters consensus estimates of $0.48 in EPS and $3.77 billion in revenue. The fourth quarter from the previous year had $0.31 in EPS and $2.58 billion in revenue.

Facebook has been on a huge roll the past three earnings-reporting quarters, and many on Wall Street feel that the stock has more of room to run (see analysts calling for $100+ stock). Mobile revenue and advertising numbers have skyrocketed. Still, the stock slid marginally lower after earnings.

However, despite this earnings beat, shares were lower in after-hours trading. If you only read the headlines on news aggregation services, they are all positive and touting that Facebook beat earnings on massive revenue growth. There is a reason the shares did not rise as the headlines from other news sources might have indicated. That would be that Facebook investors have to consider the company growing at a slower rate than previously seen.

Another risk and weight on the company is that Facebook is not turning out to be immune to the woes of foreign exchange. Overall revenues increased by 49% from the fourth quarter of the previous year, but revenues were represented as having a would-be gain of 53% if it were not for that negative currency impact.

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And on the slower growth ahead, Thomson Reuters sees earnings per share growth of 14% on 37% revenue growth in 2015. If those are anywhere in-line with estimates, they would compare to an expected 90% growth in earnings and 57% growth in revenue from 2013 to 2014. Facebook also trades at almost 40 times expected 2015 earnings per share. Many companies would love to have growth numbers of this sort, but Facebook’s investors of the past have been used to more growth than what might be expected on the baseline scenario for 2015.

Facebook reported an operating margin of 58%, which was consistent with the fourth quarter from the previous year. Free cash flow was $1.07 billion for the quarter.

In the fourth quarter, revenue from advertising was $3.59 billion, up 53%. Excluding the impact of year-over-year changes in foreign exchange rates, revenue from advertising would have increased by 58%.

Mobile advertising revenue was roughly 69% of total advertising revenue for the fourth quarter. It was up from approximately 53% year-over-year.

Payments and other fees revenue was $257 million, a 7% increase compared to last year’s fourth quarter.

Recently, video has become a popular feature among users of Facebook’s social media app. The company has said the video posts have risen by 75% worldwide and by 94% in the United States in 2014, according to a report at The Wall Street Journal.

Facebook’s user base statistics:

  • Daily active users (DAUs) were 890 million on average for December 2014, an increase of 18% year-over-year.
  • Mobile DAUs were 745 million on average for December 2014, an increase of 34% year-over-year.
  • Monthly active users (MAUs) were 1.39 billion at the end of December 2014, an increase of 13% year-over-year.
  • Mobile MAUs were 1.19 billion at the end of December 2014, an increase of 26% year-over-year.

Shares of Facebook closed Wednesday up 0.6% at $76.24. In post-market trading, shares were initially down about 3% at $74.00, following the release of the earnings report. The stock has a consensus analyst price target of $88.66 and a 52-week trading range of $53.19 to $82.17. Facebook’s highest listed analyst price target is $105, implying an upside of 39% from Tuesday’s close.

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