As I write this, shares of Facebook Inc. (FB) are rallying over 9% after hours. The catalyst was the social media network’s stunning first-quarter results, which blew analysts’ estimates out of the water. Now that FB is once again trading right around its all-time high, is there further upside from here? Let’s find out by looking at the numbers.
Last quarter, Facebook’s ad revenue jumped 56.8% over a year ago. Mobile advertising sales accounted for 82% of advertising revenue, up from 73% a year ago. Meanwhile, monthly active users rose 15% year-on-year to 1.65 billion, while mobile users rose 21% to 1.51 billion. This was all big news, because Facebook has been making a big push to make its mobile app more user friendly, as well as more lucrative for the company.
So, compared with Q1 2015, company-wide revenue surged 51.9% to $5.38 billion. Analysts were looking for $5.26 billion in revenue, so Facebook posted a 1.5% sales surprise. Meanwhile, net income more than doubled to $1.51 billion, or $0.52 per share. Excluding special items, adjusted earnings per share was $0.77; this beat the $0.62 consensus estimate by 24.2%.
Facebook also announced a proposed stock dividend. If shareholders approve the measure, existing shareholders will receive two shares of new Facebook class C stock for each share of FB they previously held. The class C shares will carry no voting rights.
As to be expected, FB shares gapped up after the excellent earnings report. The good news is that FB still has plenty of upside potential. For FY 2016, the company is expected to grow sales by 42.9%, and earnings by 38.2%. This is well above the industry average of 11.5% forecasted growth. All the while, analysts keep revising their estimates higher, so Facebook will likely do even better this year.
Keeping all of this in mind, I consider FB an A-rated Strong Buy.