FB Stock: Facebook Inc Just Delivered a Blunt Reality Check to the Bears

FB StockAds Are Driving Facebook Stock

Facebook Inc (NASDAQ:FB) just reported first-quarter earnings last night and the social network giant absolutely killed it. Facebook stock is up nearly 10% Thursday morning, as the company beat analysts’ expectations on the top and bottom lines.

The media focused on the usual numbers: revenue jumped 52% to $5.4 billion, net income tripled to $1.5 billion, and adjusted earnings per share came in at $0.77, which beat analysts’ expectations by $0.15 a share.

Impressive? Definitely.

There was one number, however, that really stood out to me: mobile ad revenue.

Facebook stock bears have long claimed the social network would never eek out real money from mobile. With more and more traffic shifting from PCs to tablets and smartphones, the company risked being left out in the cold.

So much for that argument… It was a blowout quarter for the company, much of which was fueled by mobile ads, which are increasingly becoming the bulk of Facebook’s revenue and will likely continue to be over the next few years. Mobile ads now account for 82% of Facebook’s advertising revenue. Last year, mobile ads accounted for 73% of advertising revenue. (Source: “Facebook Reports First Quarter 2016 Results and Announces Proposal for New Class of Stock,” Facebook Inc, April 27, 2016.)

This isn’t really surprising, since users continue to access the Internet from their mobile devices rather than a desktop computer. And they are still doing it at a rapid rate. Facebook now has 1.51 billion mobile monthly active users (MAUs), which is an increase of 21% over last year. That works out great for Facebook because mobile ads command more revenue than their desktop counterparts. (Source: “Facebook Revenue Soars on Ad Growth,” The Wall Street Journal, April 28, 2016.)

“Businesses are no longer asking if they should market on mobile, they’re asking how,” Facebook Chief Operating Officer Sheryl Sandberg told The Wall Street Journal. “This is a shift that we think we’re very well-positioned to take advantage of and build on.” (Source: Ibid.)

All in all, Facebook’s userbase grew 15% to 1.65 billion MAUs. Facebook was also able to squeeze more revenue out of them—$3.32 per user compared to $2.50 per user during the same period last year.

Facebook’s excellent first-quarter results are further proof that the company still has tons of growth ahead of it. FB stock looks especially good when you compare it to other tech companies, such as Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG), and Twitter Inc (NYSE:TWTR), whose shares all tanked after missing analyst expectations.

Facebook is also showing more and more that it is becoming the go-to spot for advertisers in the digital media space. According to research firm eMarketer, Facebook should capture about 12% of the $186.8-billion global digital advertising market this year. That may not seem like much at the moment, but Facebook is gaining traction, up 10.7% from last year and 8.6% the year before. (Source: Ibid.)

In comparison, rival Google’s market share is forecasted to decline to 31% this year, down from 33% last year and 35% in 2014. So Facebook has momentum on its side, which can’t be said for Google, and that largely has to do with Facebook’s explosive growth in mobile.

The Bottom Line on Facebook Stock

For now, Facebook’s bread and butter is advertising revenue, which is still growing rapidly thanks to mobile. With 1.51 billion mobile MAUs, Facebook is a goldmine for advertisers and that should bode well for Facebook stock for many years to come.