Did Facebook’s Earnings Justify the Rally?

Facebook QuestionThe last thing anyone expects to hear about Facebook (NASDAQ:FB) is that it’s valued at just the right price, not too much, not too little. The stock’s infamous post-IPO plummet fueled a frenzy of “no way this company is worth this much” trading behavior that took shares as low as $17.55. But over the past few months, sentiment has rounded the corner and the stock has been on a tear, climbing 61.8 percent since the middle of November to close Wednesday at $31.24. The question is, do the earnings justify the rally?

Fourth-quarter results:

Revenue for the quarter climbed 40.1 percent to $1.58 billion, ahead of consensus estimates calling for $1.53 billion. Non-GAAP EPS of $0.17 is a 13.3 percent gain on last year, beating estimates for EPS of $0.15. Here’s a killer: costs for the quarter increased 82 percent to $1.06 billion. Operating margin was 33 percent for the quarter, a 15 point drop from 2011.

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Full-year revenue of $5 billion is a 42.8 percent increase compared to 2011. Non-GAAP EPS of $0.53 is a 6 percent increase from 2011. The full-year operating margin of 44 percent is a 9 point drop from 2011.

Monthly active users increased 25 percent for the fourth-quarter to 1.06 billion. Daily active users increased 28 percent to 618 million. Mobile monthly active users increased 57 percent year over year to 680 million.

Mobile revenue accounted for 23 percent of total advertising revenue, a gain on just 14 percent for the third quarter. This is a key metric that many investors will be looking closely at. A nine-point gain is better than a worse-case scenario, but mobile ad revenue is still very low per user.

Shares tanked as much as 7 percent in after-hours trading immediately following the report, but 40 minutes later losses have evaporated as investors prepare for the earnings call.

Facebook, Inc. Stock Chart - FB Interactive Chart - Yahoo! Finance

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