There's Substance Behind Facebook's Run-Up
Nov 26th 2012 8:01PM
Updated Nov 26th 2012 8:06PM
Facebook (NAS: FB) is proof positive there are times in a company's growth phase that a month should be measured like dog years. The Facebook story looked quite a bit different when I wrote the article about this time in October. At that time, Facebook was trading at $23 a share shortly after announcing a solid Q3. Then, after continual pricing pressure, shares dropped to a low of about $19 just two weeks ago. But a lot's happened in the Facebook camp these past couple of weeks.
After a 30% share-price jump since Nov. 12, it'd be natural to reconsider owning Facebook right now. Is that kind of run-up warranted? Should I take my money and run? Thankfully for investors, and even more so for longtime Facebook shareholders, there are a number of tangible reasons for its stock performance of late, and these same reasons are why we haven't seen the last of it.
There's a lot going on at Facebook
A lot's happened the past two weeks at the social-media giant, beyond Facebook's rapid stock price appreciation. The social-jobs app announced on Nov. 14 is a great way to leverage Facebook's 1 billion users, and though LinkedIn (NYS: LNKD) shareholders pooh-poohed it as no competition, it shouldn't be ignored. Talent was LinkedIn's fastest-growing division -- up 95% in Q3 -- and anything that threatens that kind of rapid growth has to be looked at. For Facebook, LinkedIn's results prove there are significant revenues to be had in this exploding market.
Just in time for the holidays, Facebook expanded its Gifts service to include several new, top-drawer partners. BabyGap, Brookstone, and Random House, among others, have been added to what was already an impressive array of gifting options. What differentiates Facebook Gifts from a Groupon (NAS: GRPN) or Google (NAS: GOOG) Deals is its ease of use. The simplicity of Facebook Gifts means retailers won't have to discount their items as they do with Groupon or Google -- a big incentive for margin-conscious retailers.
Proving Facebook has gotten serious about its advertising business, it recently announced a sales tracking tool giving its advertising customers a means to measure ROI. That's a service for grown-up marketing companies, one customers expect from a leader in the advertising industry. The new tool is yet more proof Facebook is determined to maximize its revenue opportunities, easily the biggest concern of Facebook naysayers.
Nokia (NYS: NOK) issued a press release on Nov. 26 announcing a cool new feature of its new Asha 205 touch phone. Nokia's phone will include access to users' Facebook page using nothing more than a dedicated "Facebook Button." Now, before Nokia haters scoff and say "so what?" it's worth noting that Nokia sold more than 82 million phones in Q3. No, they weren't all smartphones with Facebook buttons, but Nokia remains a force to be reckoned with, and it also indicates Facebook's continued efforts to expand in the mobile marketplace.
Not surprisingly, Facebook's stock appreciation has resulted in multiple analyst upgrades. That's par for the course. The most recent change in sentiment came from Bernstein, raising Facebook's target price to $33, from its prior $23-per-share estimate. As you know, analysts are notoriously fickle, and their recommendations are hardly the only reason to invest in Facebook or any other security. In this case, though, particularly when combined with so many tangible reasons for its stock performance, Facebook's analyst upgrades to outperform have merit and are worth consideration.
There are a slew of positive signs coming from CEO Mark Zuckerberg, COO Sheryl Sandberg, and the Facebook team. If you still had doubts whether Facebook would find ways to leverage its most valuable asset -- those 1 billion users -- it's clear they're being addressed. And there's one more encouraging buy signal for Facebook right now: Its share price strength has continued, even after its Nov. 14 stock release and subsequent jump in value. In other words, Facebook shares have some legs, and that's a good sign.
Too often, a significant run-up, particularly in a growth stock, is followed by profit-taking from short-term traders, and skittish shareholders who are selling to lock in gains. But that hasn't happened with Facebook, and there's a simple reason for that -- there's substance behind its run-up.
Given its poor performance after the world's most-hyped IPO, many investors still don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.
The article There's Substance Behind Facebook's Run-Up originally appeared on Fool.com.Tim Brugger has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook, Google, and LinkedIn and has options on Facebook. Motley Fool newsletter services recommend Facebook, Google, and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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