Short interest in Facebook has increased a bit in the last couple of weeks. According to 24/7 Wall Street, short interest in the social network rose by about 632,000 shares, which brought it to about 34.8 million shares being sold short.
Why is short interest in Facebook rising?
The report suggests that the reason short interest in Facebook Inc (NASDAQ:FB) is edging upward is because shares recently hit a record high. Wall Street could be wondering what’s ahead for the stock, as it has climbed 40% just in the last year. By comparison, the NASDAQ has climbed just 15% in the same time frame.
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Facebook now has a market capitalization of nearly $226 billion, compared to its approximately $15 billion annual run rate. The social network’s revenue in the most recently completed quarter climbed from $2 billion in the same quarter last year to $3.2 billion this year. Net income, however, was just $806 million, which isn’t much of a margin for a major technology company the size of Facebook Inc (NASDAQ:FB).
However, management has been spending billions on acquisitions and said they are investing in future growth right now rather than pushing for profits.
What’s ahead for Facebook?
In the post on 24/7 Wall Street, Douglas McIntyre suggests three barriers Facebook will have to clear in order to keep investors bullish on its stock. Investors undoubtedly want to see a continued increase in the size of its user base, an issue that has plagued Twitter since it went public.
Additionally, investors want to see whether Facebook Inc (NASDAQ:FB) can keep doubling its revenue. Also they will be keeping an eye on whether users continue to spend time on the social network and whether they’re fleeing for other social networking platforms.
Of course it will be difficult for Facebook to keep expanding its user base at the rate it has been doing so. As of the end of the last quarter, the social network had 1.35 billion monthly active users, a 14% year over year increase. The platform’s user base growth has slowed down, as would be expected.
Facebook bulls remain
In a post on The Motley Fool, Brian Stoffel said he’s still very bullish on Facebook Inc (NASDAQ:FB) and outlined the reasons why he plans to buy more shares in 2015. He points out that while engagement on the social network isn’t as great as it was five years ago, it really doesn’t matter because Facebook has continued to draw in plenty of cash for advertising on its platform.
He suggests that even though studies indicate teens are leaving Facebook, adults, who may have more money, are still using the platform. He also suggests that digital ad spend will quickly rise above the current level of approximately 28%, which of course would increase Facebook’s revenue.
Stoffel also points out that Facebook Inc (NASDAQ:FB) shares are very expensive at a multiple of 55 times earnings, a large premium on the S&P 500’s multiple. However, he basically says all the best companies have expensive stocks, so it makes sense for Facebook to as well.
Why like Facebook?
The author says one of the reasons he especially likes Facebook Inc (NASDAQ:FB) is because of the social network’s visionary management. For example, CEO Mark Zuckerberg envisioned how big social media could be one day before it existed. The social network also snapped up Instagram for $1 billion in 2012. At that time, Wall Street seemed to think it was a bad idea, but now, it seems like a smart one as teens who are leaving Facebook appear to be defecting to Instagram.
Facebook also acquired Oculus VR and WhatsApp this year, two acquisitions that Wall Street again was less than thrilled about. However, he thinks they will pay off for the social network in the near future, so he continues to like Facebook’s strategy.