Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
George Osborne’s Autumn Statement and Spending Review Full Text - 25th Nov 15
Will Fresh QE From ECB Boost Gold? - 25th Nov 15
Sheffield, Yorkshire and Humberside House Prices Forecast 2016-2018 - 25th Nov 15
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15
Limits to Economic Growth - Challenge and Choices - 22nd Nov 15
Long Dollar Trade and Current Copper Price Below Cost of Production - 22nd Nov 15
UK Housing Market House Prices Affordability Crisis - Video - 21st Nov 15
The Fed Has Set the Stage for a Stock Market Crash - 21st Nov 15
Stock Market Primary V Wave Continues - 21st Nov 15
Gold And Silver - Value Of Knowing The Trend - 21st Nov 15
UK Footsie Bulls Set To Foot The Bill - 21st Nov 15
UK Housing Market Affordability, House Prices Momentum and Trend Forecast - 21st Nov 15
GDX Gold Miners’ Strong Q3 Results - 20th Nov 15
End of Schengen, Stock Market’s Technical Strength Grows - 20th Nov 15
Justice for All and The Curious Case of Zambia - 20th Nov 15
Paris, Sharm el-Sheikh, and the Resurrection of Old Europe - 20th Nov 15
Silver Prices and The Management of Perception - 20th Nov 15
Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - 20th Nov 15
Waiting for Goldot Again - 20th Nov 15
Michael Curran Goes Down-Market Shopping for Gold Stock Winners - 20th Nov 15
Why Isn’t This Incredibly Bearish Bond Market Development Making the News? - 19th Nov 15
SPX Appears to have Stopped its Rally - 19th Nov 15
The Great Fall Of China Started At Least 4 Years Ago - 19th Nov 15
Using Elliott Waves: As Simple As A-B-C - 19th Nov 15
Has Deflation Been Ddefeated? - 19th Nov 15
Dow Jones Stock Market Index is Not Going to Crash - 19th Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

Reasons Why Facebook Stock Price Could Crash After Earnings Report

Companies / Tech Stocks May 01, 2013 - 11:58 AM GMT

By: Money_Morning


Diane Alter writes: Facebook stock rose nearly 3% Tuesday to come within $11 of its IPO price - but a disappointing earnings report could send shares plunging if the social media giant doesn't show healthy improvement.

One of the biggest things to watch when Facebook Inc. (Nasdaq: FB) reports Q1 earnings after the close Wednesday will be how the company is managing the transition to mobile.

Fourth-quarter results showed improved mobile ad revenue and mobile user numbers from the previous quarter. While the trend is expected to continue, the social network behemoth will need to impress Wall Street if it wants investors to stick around.

Shares have stalled since hitting $33 in January, the highest price since the stock peaked shortly after the IPO. Year-to-date, shares are down roughly 20%, well below the 11% gain for the broad based Standard & Poor's 500 Index.

That kind of uninspiring showing amid record stock market rallies have left scores of investors with at least one foot out the door.

Investors are paying roughly $27 a share for a company that earned a paltry 2 cents a share over the last 12 months. That works out to a whopping price/earnings ratio of nearly 1,300.

Expectations for the Q1 earnings report are for a profit of 12 cents per share and revenue growth of 36% to $1.44 billion.

Even if Facebook posts better-than-expected results, the fate of Facebook stock is still fragile. Here's why.

Four Reasons Facebook Stock Could Plummet

■Mobile Ads Not Meaningful Enough
Mobile ads are key to Facebook's future growth. Early investors will recall concerns over mobile growth were responsible for the 40% price plunge FB shares experienced shortly after its debut.

Indeed, users who access the social network from smarthphones and tablets tend to be more active than those who log on from desktop devices. But, mobile ads generate much lower ad rates than those from PCs.

Fourth-quarter revenue from mobile ads accounted for 23% of Facebook's revenue, up from zero six months earlier, eMarketer reports. Facebook's mobile ad market is expected to grow 19% this year to $11.4 billion. Between 2013 and 2016, according to Gartner, mobile advertising will increase at a 29% annual rate to $24.6 billion.

In spite of that high growth rate, the mobile ad market is too small to have a meaningful impact on Facebook's $5.1 billion top line, Forbes notes.

Furthermore, Facebook's ambitious attempts to pry ad dollars away from Google Inc. (Nasdaq; GOOG) with the new HTC phone will be a struggle. The Internet giant is expected to take a hefty 53% of the mobile ad market this year, dwarfing Facebook's projected 13% share.

■Fleeing Facebook Users
Since amassing one billion plus users, chatter has swirled that Facebook members are spending less time on the site and leaving in droves.

Fickle teens have been defecting for rivals like Tumblr, Reddit, Whatsapp and Kik, taking with them crucial ad dollars. Huffington Post reports some six million U.S. members have fled since the billion user milestone was achieved.

As Facebook has "grown boring" and lost its "cool factor," those who have left are not likely to come back. A recent Piper Jaffray survey shows just 33% of teens presently consider Facebook "the most important social network," down from 42% from 2012.

■Higher Costs, Slower Growth
Facebook operating expenses are expected to spike in 2013. Additionally, 2014 EPS growth is expected to slow significantly to 27.6%.

Any earnings outlook that shows higher expenses amid lower earnings will give investors few reasons to stick around - especially with shares priced high.

Still down about 29% from when it began trading as a public company nearly a year ago, FB shares are no bargain. Forbes crunched the numbers and found the stock is still 76% overvalued.

■The Board Room Shuffle
As COO Sheryl Sandberg promotes her controversial best seller "Lean In," investors are left questioning just how time consuming her job at Facebook is, how much time she is putting in and her lofty compensation.

Last year, Sandberg was the highest paid Facebook executive pocketing $26.2 million in cash and stock.

What's more, venture capitalist Jim Breyer announced last week he is stepping down from Facebook's board. Breyer joined the board in 2005, the year he and his Accel Partners invested $12.7 million in the then-promising company. Breyer says he is stepping down to focus on his role at Harvard Corp., one of the governing bodies of Harvard University. His departure leaves a notable hole.

Watch for Facebook stock to react to Wednesday's earnings report after hours.

Source :

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History