I can hardly believe it, but it has been over eight months since Facebook Inc. (FB) went public. And boy has it been a ride. The stock got off at a rocky start, to say the least, plunging over 50% in the first three months of trading. After stumbling along for a few months, FB went gangbusters, jumping 42% in the past three months alone.
So the question on everyone’s mind is: Is it time to buy?
At first glance, the answer isn’t clear. To complicate matters, yesterday’s fourth-quarter earnings announcement sent mixed signals about the social media giant. On the one hand, Facebook did manage to attract one billion more users in 2012 and its sales jumped 40% in the fourth quarter alone. On the other hand, Facebook’s earnings plunged 69% compared with Q4 2011 as the company had to contend with higher costs.
So while Facebook is breaking more ground in the mobile market and continues to draw in more ad revenue, this company still has a few kinks left in the works. In any event, I won’t even think about adding this stock until we have a full four quarters worth of data so that I can properly run it through my Portfolio Grader tool.
That won’t be for another few months, and I’m not entirely convinced that Facebook will make the cut. We saw three internet IPOs shortly before the Facebook offering, and the past year has been a bumpy one for these stocks:
- Angie’s List Inc. (ANGI) -14%
- Groupon Inc. (GRPN) -73%
- Zynga Inc. (ZNGA) -75%
So not a single one made the cut once they were added to Portfolio Grader. The fact is that the challenging earnings environment hasn’t been kind to these companies—each is struggling with earnings growth, operating margin, cash flow and return on equity:
So if the latest earnings news has had you thinking about “friending” Facebook stock, I recommend that you resist the temptation. We just don’t have enough financial information to make a good judgment call just yet and I’m concerned that FB will follow in the footsteps of its ill-fated predecessors.