Facebook shareholders 'Like' its results

Revenues jump 32% and shares pop

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 25, 2012 10:37 am AEDT

Social media giant Facebook has finally given its shareholders something to 'like'.

The company has seen a 25% increase in its share price since the 23rd October earnings announcement, which is good news for some shareholders who had seen their investment fall close to 50%, before the announcement.

Revenues for the third quarter jumped 32% compared to the same period last year to US$1.3 billion. Of that, $1.1 billion came from advertising, a 36% increase over last year. Unfortunately, the increase in revenues didn't translate into underlying profit. Expenses rose by 64%, not surprisingly as the company enjoys a massive growth spurt. Still, Facebook generated a profit of $311 million for the quarter, an impressive 25% net profit margin.

The really impressive news was Facebook's mobile results. Of the 1 billion active monthly users, more than 600 million are mobile, a 61% increase over last year, as the popularity and spread of smart phones, tablets and iPads increases.

14% of the company's advertising revenue was generated from mobile, which shows that Facebook's efforts to make its mobile experience more dynamic are taking hold.

"I think our opportunity on mobile is the most misunderstood aspect of Facebook today," CEO Mark Zuckerberg said during the call. "I believe that over the long run we're going to see more monetization per time spent on mobile than on desktop."

After the world's most hyped IPO turned out to be a dunce, many investors had shunned Facebook. Shares traded at US$38 back in May, and had fallen as low as US$17.55, before recovering strongly to end at US$23.23 overnight.

There are still some major risks Facebook err…faces. Google's social media service, Google+ is growing at an alarming rate and hot on Facebook's tail. The service currently has 400 million users, 100 million of which are regarded as 'active'.

The Foolish bottom line

Facebook is really just getting started with growing its earnings. The company should be able to diversify its income, making more revenue from games, other apps and its 1 billion users in future. You only have to see what Australian online businesses like Seek Limited (ASX: SEK), REA Group (ASX: REA), Carsales.com (ASX: CRZ) and Webjet Limited (ASX: WEB) have achieved.

With that many potential customers, it wouldn't take much to see Facebook's underlying profits skyrocket. Like.

If you only invest in one company this year, make it our "Top Stock for 2012-13". Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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