More than one year has passed since the IPO, and Facebook Inc (NASDAQ:FB) is still far from its offering price. The situation changed for the better, but the operating margin is heading lower and the profit is going nowhere. On the plus side, the company is delivering strong revenue growth, and its mobile monetization efforts are doing better now. Facebook Inc (NASDAQ:FB)’s share price has not participated in this year’s strong rally, and it still does not look ready to move higher.
Recent news hit the share price
Facebook’s share price has been under heat recently, with the focus on its competitors. Yahoo! Inc. (NASDAQ:YHOO) has announced the $1.1 billion acquisition of Tumblr. The company will be independently operated, and David Kamp will remain CEO. Yahoo sees potential in Tumblr’s social features, and Tumblr might become the Twitter of longer-term material. Tumblr has become a powerful microblogging platform and social networking website, which currently has over 108 million blogs. Tumblr’s 2012 revenue was just $13 million, but the company expects to reach $100 million in 2013.
Google Inc (NASDAQ:GOOG) has completely redesigned its Google+ social platform. The new design exposes visitors to more visual content at once, and Google is hoping that users will find something that is of their interest quicker. And it is not just the new layout; Google has also worked to turn the social platform into more of an app instead of a website. The redesign includes animations that should serve to make it more fun. There are also new features like the “Auto Enhance,” which will analyze and tweak the uploaded photos. Google+ now also offers a feature called “Auto Highlight,” which picks out the best photos of the users, and skips blurry photos, any duplicates and underexposed shots.
So, the competition is not wasting time. On the other hand, Facebook Inc (NASDAQ:FB) is making a lot of efforts in the mobile field. It is rumored that the company is on its way to acquiring Waze for $1 billion. Waze generates maps and traffic data by tapping into users’ smartphones through satellite signals. The users of the company’s apps upload data about local traffic, accidents and gas prices among other things. But the deal has apparently hit a roadblock recently, and the two companies are having problems with a few key areas.
Earnings cycle
Facebook has not managed to grow its earnings by much in the last two years, and this year’s earnings are expected to rise just 7.5%. However, analysts expect the growth to pick up next year. Earnings are expected to rise 35% in 2014. Revenue growth has been robust, in the 32% to 40% range in the past four quarters. Non-GAAP operating margin has been trending down in the last eight quarters, from 53% in the second quarter of 2011 to 36% in the first quarter of 2013. EPS trends are mostly flat for the next quarter and the full year, but 2014 estimates have moved slightly down in the last 90 days. The earnings cycle is in slightly negative territory. The growth is not decelerating, and the EPS trends are mostly flat. Operating margin is the worst part, moving the gauge to the slightly negative side. If earnings growth picks up as it is expected, and the operating margin stops contracting, or perhaps moves higher, we could see the share price move higher from these levels.
Bottom line
Although there are signs of improvement, Facebook Inc (NASDAQ:FB) is still not ready to move higher. Pressure from the competition is mounting, and the company needs to keep working and innovating in order to keep the leading role in social media. The stock seems well supported at the $25 level, which is to be closely watched. But I would not expect much from Facebook until the earnings cycle improves, meaning at least somewhat higher expectations and positive surprises.
The article Facebook Is Still Not Ready to Fly originally appeared on Fool.com and is written by Dusan Jovanic.
Dusan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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