Facebook Inc (NASDAQ:FB) shares have been hovering just under $55 for weeks, and Business Insider‘s Jim Edwards thinks he knows why. He thinks investors are concerned that the social network’s business is about to slow down. To some degree, they’re right, but not for the reason bears like Seeking Alpha contributor Leah Frakes thinks.
Will Facebook slow down?
Edwards notes that one thing investors and analysts look at when examining a company’s growth is comparables. Specifically, they like to look at the percentage of growth. Facebook Inc (NASDAQ:FB) has been blowing its previous results out of the water over this past year, but only because of some changes in its strategy.
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He notes that in the second quarter, investors got excited because they realized that the social network was hitting it big in mobile advertising. At that time, Facebook’s advertising revenue jumped significantly from the second quarter of last year because the social network didn’t have mobile ad revenue at that time in 2012. The third quarter had a similar result, and the fourth quarter will again look like exceptional growth.
And when 2014’s results come around, they’ll be compared to 2013’s results, and it will look like those percentages are getting significantly smaller, because they are. But only because Facebook added a new line of revenue. As Edwards notes, this isn’t that the social network’s growth is necessarily slowing, even though the comparable percentages are looking rougher.
Facebook, a speculative investment?
Frakes’ view is pretty much the exact opposite of Edwards’ view. She says Facebook Inc (NASDAQ:FB) has “weak fundamentals” and a “flimsy business strategy.” She thinks the social network’s stock is good purely for speculative investing in the short term and not for long-term investment. If investors and analysts start to turn bearish on Facebook because of the tough comparables Edwards is talking about, then she’s probably right. However, there are plenty of analysts who would beg to differ when she calls Facebook’s business strategy “flimsy.”