NEW YORK (MarketWatch) — Facebook Inc. just reported a blowout quarter for its most important revenue source, but Wall Street is having a hard time getting excited.
Even those analysts who are positive on the stock acknowledge the social-media giant FB, +0.34% could have a difficult 2015 as growth decelerates. Shares, which dropped in after-hours trade after the results were announced, have moved higher Thursday but are flat midday.
“FB beat revenue and earnings once again, but the Street is no longer rewarding the outperformance,” said Janney Capital Markets analyst Tony Wible, who reiterated a neutral rating on the stock.
Facebook boasts a user base of nearly 1.4 billion — about equal to all of China. It now has 700 million WhatsApp users, 500 million Facebook mobile users and 300 million people on Instagram. Video racked up three billion views a day, triple that of the third quarter.
Perhaps most impressively, advertising revenue on mobile devices doubled to $ 2.5 billion in the fourth quarter over a year ago and now comprises 69% of total ad revenue — a critically important factor as the growth of people looking at Facebook on mobile devices continues to outpace that of people doing the same on PCs. Analysts had been expecting mobile-ad revenue of $ 2.35 billion.
But there are worries about the company’s immediate spending plans.
Pacific Crest Securities analyst Evan Wilson warned that Facebook may be getting ready to enter a period of “decelerating revenue and declining margins” if heavy spending on research and development offset near-term growth.
Facebook Chief Executive Mark Zuckerberg over the last two quarters has said the company will spend more money now to invest in growth opportunities that will pay off with bigger earnings later. The $ 410 million it spent on R&D last quarter far exceeded Pacific Crest’s $ 325 million estimate, according to Wilson, who reiterated a sector perform rating on the stock.
Cantor Fitzgerald analyst Youssef Squali said he believes aggressive levels of investment will continue but that management is allocating money strategically to reflect shorter-term strategies at the Facebook platform and long-term innovation at Oculus and Instagram.
The investments will “keep margins in check short-term but expand over time,” Squali said.
Cantor reiterated a buy rating on the stock and raised its price target to $ 90 from $ 80
To be sure, most analysts are still very bullish on Facebook.
Canaccord analyst Michael Graham said he isn’t too worried that currency headwinds could impact 2015 revenue by around 5%.
“With several monetization drivers still in early innings, we believe estimates should keep improving in the near term,” he said.
He stuck with his buy rating and upped his price target by $ 2 to $ 90.
Sterne Agee’s Arvind Bhatia said Facebook will likely see some top line deceleration in the near- the medium-term, but that it will mostly be viewed as negative only by short-term holders of Facebook’s stock. He reiterated a buy rating.
Nomura analyst Anthony DiClemente, who reiterated a buy rating and $ 90 target on the stock, said Facebook has reached an “impeachable trajectory.”
Wedbush maintained an outperform rating. Stifel raised its price target on the stock to $ 97 from $ 94 and held on to its buy recommendation. Raymond James backed its outperform rating and increased its target to $ 90.
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