Facebook (FB) Q3 earnings breakdown/reccomendation

FacebookOur friend and well-respected analyst Craig Rapisarda joined us in the trading room this morning to talk about Facebook’s results. He was also kind enough to put his thoughts on paper, and allowed us to share them with you.

Disclaimer: This analyst has no exposure to FB at the time of this publication. Craig is the Lead Earnings analyst at Briefing.com. 

Facebook (FB) pared all of its after hours gains following very strong Q3 results after the call revealed that 1) FB does not plan on increasing newsfeed ad frequency beyond the current ~5% mix and 2) CFO Ebersman commented about a decrease in teenage daily users – this does not come as much of a surprise, and is an incremental positive for Twitter (I am very Bullish on the TWTR IPO).
Traders may be looking for the stock to give up some of its ~80% YTD gains tomorrow morning following the Bearish after hours price action but the Street will be gushing about this report and consensus estimates are headed higher.
The Bullish thesis is intact. Mobile ad revenue is surging and the social network’s operating leverage is impressive, demonstrated by adj. operating margins +740 bps YoY at 49% — scale that is reminiscent of global payment behemoths Visa and MasterCard — see V/MA charts). Q3 adj. earnings grew 100% as ad revenue grew 66% to $1.8 bln; mobile rev mix was 49% vs. just 14% in 3Q12.
While the ~$120 bln mkt cap remains pricey at ~12x next year’s sales and ~40x next year’s earnings. FB will remain the mobile/social growth stock to own for the second quarter in a row.
I like FB at these levels ($49/share). The stock is even more attractive at strong support of $47/share (which also coincides with the 50 day moving average) and the mid-$40 range. Unless we see a total collapse in momentum stocks/the S&P 500 here into year end, I see the stock easily returning to the mid-$50s.
I was Bullish on FB heading into the IPO and Bearish right after it. Wall Street lived up to its reputation by maxing out a massive offering that had historic retail demand (Twitter is not playing out this way). Facebook came public as active users were migrating from its desktop platform and to its mobile app, where monetization was lacking. But things changed last quarter when mobile results blew out expectations. Facebook has executed a drastic transformation of its business model.less