Mobile Focus Makes Facebook Stock An Attractive Long Play

  • Facebook crushed earnings and Facebook stock price shot up overnight.
  • 2016 will be the year to monetize WhatsApp.
  • You may buy an Apple phone and do Google searches, but you spend your mobile time on Facebook.

Any media analysts nonplussed about Facebook's (NASDAQ:FB) outstanding results this quarter fail to understand the essence of Facebook.

They’re probably thinking of Facebook as just a social media company, and social is a niche that is fading over time. But Facebook has actually become the King of Mobility, with an ad network tailored to monetizing that, and is thus dominating mobile advertising in ways Alphabet Inc-A (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) can only dream of.

For the December quarter Facebook reported earnings of $1.56 billion, 54 cents per share, on revenue of $5.84 billion. This compared with earnings of $701 million, 25 cents per share, and revenue of $3.85 billion a year earlier. Net income more than doubled, and revenue was up 51%.

The results sent the stock on the kind of after-market ride well-remembered from the heady bull market days of 2014 and 2015. Facebook stock, which had steadily fallen since the start of the year from $105 to $94, opened trade on January 28 at $108/share.

FB stock chart

Source: Facebook stock price chart by

Facebook has spent the last two years focused entirely on how its site is presented on mobile devices, and invested its money in apps like Instagram and Whatsapp that are geared to mobile users. It has also invested in its own ad network and cloud data centers to make itself completely independent of its rivals. Some 80% of its ad revenue now comes from ads served to mobile devices.

You can see this by looking at its cash flow data. In each quarter of 2015 Facebook had negative investment cash flows of at least $3.5 billion, and during 2014 negative investment cash flows came in at about $6 billion. As with Amazon (NASDAQ:AMZN), this investment was mainly sustained by organic revenue, which came in at $12.46 billion during 2014 alone, and near $18 billion for 2015. Facebook enters 2016 with no long-term debt, and $13.1 billion in short-term investments.

During 2014 Facebook was mainly focused on monetizing its social network. Last year it focused mainly on monetizing its Instagram service, sharing that revenue with its users. This year it will focus on monetizing WhatsApp, and should hit yet-another gold mine in the process.

Facebook still has enormous room to grow. Users may buy an Apple phone, and they may do searches on Google, but they spend most of their time on Facebook and its apps. Facebook revenue is still just one-fourth that of rival Alphabet, but with its dominance in mobile content Facebook stock is starting to look like a better investment to many analysts. Out of 51 analysts following the stock, 42 had the stock as an outright buy before earnings..

Sometimes analysts are right.

Dana Blankenhorn Dana Blankenhorn   on Amigobulls :
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