Facebook Confounds the Skeptics

 | Oct 31, 2013 | 8:00 AM EDT  | Comments
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Last night Facebook (FB) reported better-than-expected revenue and earnings. I first picked Facebook as a best idea last year, on May 29, at $28.84. I stayed bullish in August of that year and stuck my neck out again in January. I slapped a $60 on the stock -- and not it's almost there.

The reason I was so bullish on the stock was simple. Facebook finally figured out how to make money -- and make money it did.

Revenue in the September quarter rose 60% to $2.02 billion, and earnings came to $0.25 per share. Daily active users jumped 25% to 728 million. More exciting was the increase in mobile users. Facebook said monthly users on mobile devices rose 45% to 874 million people. Mobile revenue was 49% of total revenue, up 14% from the year-earlier quarter. Operating margin was an astounding 49%, up 700 basis points year over year.

After an initial pop on the results, the stock settled back down as the conference call played on. Management cut capital expenditures slightly to $1.4 billion, and said it expects a slightly higher tax rate. But it seems an offhand comment by Chief Financial Officer David Ebersmith really had investors freaking out. He said Facebook was slightly less popular with teens and saw less daily usage from younger users.   

Despite management's comments, I remain bullish on Facebook. If the company achieves fourth-quarter estimates, 2013 will end with revenue of $7.4 billion, up 46%. For next year, the Street consensus is estimating revenue growth of 35% to $10 billion. It's really hard to find a company growing revenue 35% with a 74% gross margin, and operation margin of 49%. ,

Despite the naysayers who complain Facebook is a one-trick pony and that its advertising revenue won't grow as quickly as it has done in the past, I think the stock can still continue to confound the skeptics. I'm staying bullish. By this time next year, the stock will be at $65.

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