Facebook's Stock Will Go Up, Says Zuckerberg

Facebook (NASDAQ: FB  ) shares are down about 37% since the company went public in 2012. Meanwhile, the S&P 500 is up about 26% overall. That's quite a hit for Facebook investors. Though CEO Mark Zuckerberg is concerned, he still believes that in time Facebook stock will deliver value to shareholders.


Source: Engadget. 

Well, Zuckerberg, you'd better get busy. The expectations are very, very high.

Business versus stock
Arguably, Facebook as a business has done extraordinarily well since the company went public. Revenue was up 37.8% in the company's first quarter. Plus, mobile advertising revenue now accounts for 30% of the company's revenue, up from virtually zero in 2011. This should alleviate the initial concerns investors had when the company went public about whether Facebook could monetize mobile.

So what's the problem? Expectations. Facebook went public with a stock price of $38, trading at 107 times its trailing-12-month earnings at the time. Expectations for the stock were nothing short of exorbitant.

Nevertheless, Zuckerberg was confident at Facebook's annual shareholder meeting:

We understand that a lot of people are disappointed in the performance of the stock, and we really are, too. It's our job here to build a great company that's going to not only achieve the mission, but bring a great financial return for all of our shareholders. We take that responsibility very seriously.

We have always taken a very long-term view of this. It's taken us nine years to build the network to where it is now.

We think that over time, we're building an asset and a network that's increasingly valuable in the world, and in the long term, we will create value for shareholders by doing that.

What will it take?
Unfortunately for Facebook investors, expectations for mind-boggling growth haven't been alleviated, even with the stock down 37%.

Using a 10% discount rate in a discounted-cash-flow analysis, Facebook's free-cash-flow growth over the next 10 years would have to look something like this scenario for the stock to be worth its current value at $24 per share:

Year

Growth Rate

1

35%

2

32.1%

3

29.5%

4

27.1%

5

24.9%

6

22.8%

7

20.9%

8

19.2%

9

17.7%

10

16.2%

Is it possible?
With revenue up 38% from the year-ago quarter and with daily active users and monthly active users up 26% and 23%, respectively, the company is still growing fast. Furthermore, the company's success in mobile offers promising revenue in an age that seems to be trending increasingly more toward mobile devices.

Still, even with Zuckerberg's reaffirmed commitment to creating value for shareholders, Facebook is an expensive stock. If you're willing to buy shares, you'd better be a big believer in the company's long-term success.

After the world's most hyped IPO turned out to be a dud, many investors don't even want to think about shares of Facebook. But there are things every investor needs to know about this revolutionary company. The Motley Fool's newest premium research report shows that there's a lot more to Facebook than meets the eye. Read up on whether there is anything to "like" about it today to determine if Facebook deserves a place in your portfolio. Access your report by clicking here.


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  • Report this Comment On June 15, 2013, at 11:45 AM, wasta wrote:

    Not in a million years. I predict that Facebook stocks will crash after today's news that they have granted access to the US Government to over 10 000 accounts. Facebook does not respect the privacy of its users. Many facebook users had enough now. Sorry.....stocks will go down.

  • Report this Comment On June 16, 2013, at 4:24 AM, Biloxi8 wrote:

    It is clearly going down not up. The CIA /FBI data gathering project is over. What were people thinking anyway? Did they think that their personal data is in safe hands? FB is a scam. You have just been duped by scam artists.

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