Facebook Inc (FB) Shares Struggle Despite Upgrade


Facebook Inc (NASDAQ:FB) released its earnings report for the third quarter of 2013 yesterday afternoon and beat the expectations of Wall Street. Despite the beat, shares in Facebook were down a fraction on today’s market at time of writing. Investors don’t seem to have been impressed with the report, though some analysts disagreed with the assessment.

Facebook Inc (FB) Shares Struggle Despite Upgrade

Michael Graham, an analyst with Canaccord, increased his estimates for the fourth quarter on the back of the Facebook Inc (NASDAQ:FB) report and increased his price target from $60 to $62 per share. At time of writing, shares in the company were trading at just over $49. Graham laid out his reasoning for the increased estimates in the report.

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Facebook earnings

Graham was impressed with the Facebook Inc (NASDAQ:FB) mobile earnings growth in the third quarter, and the company’s expense outlook. Facebook showed mobile ad revenue growth of 34% from the last quarter, and the income accounted for almost half of the firm’s total revenue in the September quarter.

Graham increased his revenue estimate for the full years 2013 and 2014 to $7.73 billion and $9.96 billion, up from $7.46 billion and $9.73 billion respectively. Earnings estimates were increased to $0.84 and $1.06 per share from $0.75 and $1.00 for the full year reports. There were some negatives in the report, however, and they may account for the lack of enthusiasm for Facebook Inc (NASDAQ:FB) on today’s market.

The report cited Facebook’s decision to leave the amount of ads on the company’s newsfeed at the same level for the near term as one of the negatives revealed by the company. Graham also said that usage among younger teens in the United States may have entered a period of decline, and that ad pricing may not be enough to drive growth.

Facebook share slide

It’s clear from today’s market that Facebook Inc (NASDAQ:FB) investors think that the company is valued fairly despite the beat on earnings. There is always a worry that the company’s advertisements may reduce the time that people spend on the site, and may even reduce the amount of users on the social network. Facebook’s caution with its ad load shows that management is taking note of the problem.

The bullish case on Facebook Inc (NASDAQ:FB) is a speculative one, and it’s summed up by Graham in his report. According to the analyst, “revenue will eventually catch up with time spent.” That reasoning was clearly not enough to drive prices higher this morning.