Sticking My Neck Out for Facebook

 | Jan 03, 2013 | 11:00 AM EST  | Comments
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Last May, I thought the Facebook (FB) naysayers were wrong. I confidently predicted the social network would soar to $60 a share after it went public. Boy was I wrong. I revisited my prediction in August and decided to double down. Since then, the stock is up about 47%. I'm sticking my neck out again. I believe Facebook will be one of the best-performing large-cap stocks of 2013.

Now that there's nothing left for investors to worry about -- the uncertainty of the election is over, nobody talks about Europe any longer and the fiscal cliff has been settled -- investors can turn their attention back to chasing growth. Facebook has tremendous revenue growth ahead of it and now is time to invest because once this stock gets going, it will be hard to catch. Why? I have five reasons.

First, the "smart" money is mostly out of the stock. The hedge funds and mutual funds don't own it. They spent the summer in the Hamptons bragging about how they sidestepped the Facebook IPO debacle. The stock isn't even on their radar screens (they worry about valuation too much, anyway.) But with a 60% move off the bottom, I see the aggressive growth crowd coming back with a vengeance.

Second, Wall Street keeps tweaking estimates higher. For fiscal 2013, many analysts are bucking the $6.5 billion consensus estimate and are privately talking about $6.7 billion revenue forecast when the company reports earnings Jan. 30. Widespread estimate bumps after the fourth-quarter report would light a fire under the stock.

Third, investors are beginning to realize that Facebook is generating a lot of money. For fiscal year 2012, Wall Street is estimating revenue of $5.02 billion, which is up 35% from last year. And, as I mentioned previously, fiscal 2013 estimates are $6.5 billion, up 30% from 2012. With a 74% to 75% gross margin, Facebook will likely report an operating profit of $2.2 billion to $2.3 billion in 2013. That would be a 76% increase over 2012. That's a lot of dough. Few large-cap companies have 30% to 35% top-line growth, not to mention a 76% jump in operating profit.

Fourth, technicians are recommending the stock. If you stare at the chart long enough, you can see a cup and handle. Some see a golden cross or silver star or something like that, but once the technical crowd jumps on the stock, the momentum they generate tends to feed on itself.

Finally, analysts are figuring out that Facebook has a huge opportunity in mobile. According to a J.P. Morgan analysis, Facebook probably had 49% growth in mobile ad revenue in the fourth quarter, up from 38% in in the third quarter. Mobile revenue could make up 27% of revenue in the quarter, up from 14% in the third quarter. If true, investors would no longer have to worry about the mobile ad business. It could be a rocket ship.

I've been wrong about Facebook before, but I believe the company will get a few lucky breaks this year and end 2013 as the best-performing large-cap stock in the U.S. Next stop is $38, and eventually $60.

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