Technical Analysis by Rajiv Singh
Revenue from Mobile Ads Accounted for 49% of Ad Revenue
Facebook Inc. (NASDAQ: FB), the world’s largest social media company, beats WallStreet’s expectations as it reported a whopping 60% growth in revenue to $2.02 billion in Q3 from $1.26 billion in the year-ago periodon the back of increasing mobile advertising revenue. What is more, profits amounted to $425 million, or 17 cents per share, up from a loss of $59 million, or 2 cents per share, in the year-ago period.
Strategy to Become a Mobile-first Company Paid Off
Facebook’s advertising revenue was $1.8 billion, up 66% from the year-ago period. Mobile ads accounted for 49% of the company’s total ad revenue during Q3, as compared to 41% in Q2, as shown below. Facebook, which earlier sensed the threat from mobile devices eating into its desktop business, aggressively reacted to changes in user preferences and reaped the benefits of this exercise in just five quarters. During this time, Facebook’s mobile advertising revenue grew from 3% of total advertising revenue to 49% as shown below.
Mobile Ad Revenue vs. Total Ad Revenue Growth Trend
Creating a More Engaging Audience
Facebook has been hugely successful in creating a more engaging audience over time,thereby creating more opportunities to deliver ads and grab eyeballs. Daily active users (DAUs) were 728 million on an average for September 2013, an increase of 25% year-over-year.Monthly active users (MAUs) were 1.19 billion as of 30 September 2013, an increase of 18% year-over-year. However, the most watched metric among industry experts is mobile MAUs, which was at874 million as of 30 September 2013, an increase of 45% year-over-year. Mobile DAUs were 507 million on an average for September 2013. Another interesting trend is mobile only MAUs which doubled year-over-year from 126 million to 254 million as of Q3 2013.
We strongly believe in the growth potential of the burgeoning mobile and smartphone industries and Facebook will definitely flourish with the mobile industry growth. As per an estimate from eMarketer, Facebook will account for 15.8% of the global mobile ad spending in 2013, up from 5.4% in 2012. Google Inc., meanwhile, is expected to capture 53.2% share this year, up from 52.4% in 2012.
On a negative note, Facebook’s MAU in the US and Canada grew only by one million in last quarter, the lowest sequential increase in the past few quarters.
Facebook MAU Growth (in million users)
Teen Problems Pull Down Stocks
Facebook’s better-than-expected results sent the stock soaring about 17% during the after-hours. However, the stock’s rally came to a grinding halt whenChief Financial Officer David Ebersman acknowledged during the earnings call that Facebook saw a decrease in daily users, specifically among younger teens in the US.He also said that while Facebook will continue to work on improving the quality and relevance of newsfeed ads, the company does not expect to significantly increase ads as a percentage of newsfeed stories beyond the level at the end of Q3.
In July, Facebook said it was showing one ad per 20 stories in the newsfeed, but Chief Financial Officer David Ebersman said that the current ratio, although slightly higher than 5%, would not increase much more going forward.
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WSA on Facebook
With the robust mobile revenue growth potential, continued user engagement through rising MAUs, introduction of video ads, and increased margins, we revise our Facebook 12-month price target to $59 with a Buy rating. Our adjusted EPS estimates for FY 2013 and FY 2014 is $0.83 and $1.23, respectively.
In addition, technical indicators provides a mixed signal at the current level, Facebook is trading below its 20-day, 10-day, and 5-day moving averages and makes a bearish trend. The RSI indicator in its high 40s suggest indecisive stage for the stock, whereas MACD suggests a Buy at the current level. Overall, on a short-term basis, Facebook stock looks bearish.