Facebook: How Much Can You Believe in Its Comeback?

On May 6, when Fortune magazine unveiled its annual list of the 500 biggest U.S. companies by revenues, there was one notable member.

No, it wasn't quite a surprise to see that Wal-Mart topped the parade of corporate high achievers. The party crasher I'm referring to clocked in at No. 482: Facebook (NASDAQ: FB  ) , which made the cut less than a year after going public.

Surely you can remember the social media giant's ill-fated initial public offering of last May 18 --- how could we forget it? It seemed that anything that could go wrong did. At $38, the stock was overpriced. CEO Mark Zuckerberg made an underwhelming impression during the road show, hoodie and all. And then, finally, technical glitches marred the first day of trading.

But that must have seemed like a distant memory when Fortune Managing Editor Leigh Gallagher said on CBS This Morning that Zuckerberg was "the youngest person on the list."

The recognition from Fortune capped off a stirring comeback for Zuckerberg. When the stock began trading, it soared to $45 and shareholders immediately started fantasizing about buying yachts and owning summer homes in the tropics.

 But that was to be Facebook's high-water mark. The stock promptly tumbled down, down, down. It eventually reached an all-time low of $17.55 and supporters-turned-naysayers inevitably began to question Zuckerberg's leadership credentials.

Lately, however, Zuckerberg and his deputy, Sheryl Sandberg, she of the best seller Lean In, have succeeded in not only allaying investors' fears. They have presented a coherent strategy for Facebook's future, based on increasing its advertising revenues and zoning in on the mobile market. Remember, the company finally announced in early 2012 that it would begin showcasing ads on mobile instruments and the desktop news feed.

Still, a nagging question lingers among some clear-eyed stock market mavens: How much of Facebook's revival can you truly believe in?

A week after Facebook reported its fiscal first-quarter earnings, Seeking Alpha weighed in on May 6, in a piece pointedly entitled: "Is Facebook Worth the Price of Admission?" Yes, Facebook had slightly surpassed Wall Street's revenue estimates but earnings failed to top the projections.

Analysts note that Facebook's expenses are increasing much more rapidly than its revenues, which will put stress on margins for now. The upshot is that Facebook's valuation will appear to be extreme in some quarters.

In the three-month period, Facebook had revenues of $1.46 billion, exceeding expectations of $1.44 billion, signifying growth of nearly 38% over the year-before span.

It missed by a penny when it came to meetings earnings calls.

"Additionally," according to Seeking Alpha, "after Facebook mentioned on the Q4 call that expenses would rise by 50% this year, analysts took down their average estimate by a penny. Back in January, analysts were expecting $0.14 in Q1. They came down by a penny, and Facebook still missed."

Those can sound like sobering words.

For better or worse, in today's mass-media culture, you're either up or down, with no middle ground of neutrality. And the swings of stock market emotions can be extreme.

Look, for instance, at the resurgence of Netflix. Given up for dead after its ill-timed price hike in the summer of 2011, the company ignored the catcalls from the journalists and it looks like much-maligned CEO Reed Hastings -- luxuriating in having the best-performing stock in the Standard & Poor's 500 index over the first quarter of this year -- may wind up enjoying the last laugh on the rest of the world.

Surely, Zuckerberg has paid close attention to the unfolding Netflix saga -- as have his legions of supporters and detractors. Zuckerberg is famously independent-minded, which is why he has scaled these exalted heights in the first place. His many backers loved him from the start because he refused to follow the pack and was determined to blaze his own path, despite the steep obstacles.

The stock market is learning to love -- OK, accept -- him. Fortune has bestowed upon him entry into its most exclusive club.

So, then, what's not to like? Well, what about the skeptics who will invariably note that Facebook, currently trading at about $28, is still closer to its bottom than its high?

Clearly, Zuckerberg & Co. still have more work to do.


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