Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Why Facebook May Be Ready for Prime Time

Monday, February 4th, 2013
By for Profit Confidential

Facebook, Inc. (NASDAQ/FB) reported promising fourth quarter and 2012 numbers, but the results were not that well received by the investment community. So what went wrong?

Based on my stock analysis, there was really nothing wrong or alarming about the results. In fact, I think the report was pretty darn good. A major reason why the stock didn’t react was that the stock had already factored in the good results; it had been steadily edging higher on the chart and broke above the $30.00 level on January 9 with nearly 105 million shares traded, the highest daily volume since November 16, 2012.

There is clearly some market interest returning to Facebook since the stock plummeted to $17.55 on September 4, 2012. The stock price is still far away from the $38.00 initial public offering (IPO) price and its $45.00 high when it debuted May 18, 2012; however, the upward momentum and volume make Facebook an intriguing look at this time, based on my stock analysis.

Facebook launched “Graph Search Beta,” which will allow the user to have advanced searching capabilities within all the information found in Facebook. In my stock analysis, this new service will add to stickiness for web uses on Facebook and will help to drive revenue growth.

Based on my stock analysis, I like the company’s increasing revenues from the mobile advertising area, something Facebook will focus on. In the fourth quarter, Facebook said its mobile revenues accounted for 23% of the total $1.3 billion in advertising revenues, up from 14% in the first quarter. Advertising revenues accounted for 84% of total revenues.

My stock analysis also indicates that the specific user data presented by the company was also encouraging for Facebook. (Source: “Facebook Reports Fourth Quarter and Full Year 2012 Results,” Facebook, Inc. web site, January 30, 2013.)

Monthly active users increased 25% year-over-year to 1.1 billion as of December 31, 2012.

Daily active users surged 28% year-over-year to 618 million in December 2012.

But what was promising was the mobile numbers; mobile monthly active users increased to 680 million, up 57% year-over-year, and the number of mobile daily active users was greater than those via non-mobile streams.

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The numbers are promising, and they make Facebook more of a player in the mobile social media scene, according to my stock analysis. Of course, Facebook’s massive user base of over a billion subscribers also works in its favor.

This is significant; if the company can monetize this asset, the stock could continue to drive higher, based on my stock analysis.

The chart shows the nice steady rally in Facebook’s stock since it broke above its 50-day moving average (MA) in mid-November 2012, with higher highs and lower lows. We may be witnessing a bullish cup and handle formation on the chart below, based on my technical analysis.

Chart courtesy of www.StockCharts.com

Whether you blog, tweet, or meet face-to-face in the virtual world via Skype, Facetime, or Facebook, there are vast opportunities in social networking, particularly in China (read “Why China’s Internet Sector Is Lucrative”), according to my stock analysis.

While I was not too keen on Facebook in the past, I’m beginning to sense something big could happen as far as the company’s vast potential, based on my stock analysis.

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles