Facebook Still Has a Lot of Friends -- Ahead of the Tape

By Steven Russolillo

If there is one company that can buck the tech industry's recent earnings malaise, it might just be Facebook Inc.

There has been plenty to cheer about the social network's impressive growth of late, particularly on mobile. It also has relatively untapped sources of revenue at its disposal over both short- and long-term horizons, specifically in messaging and virtual reality.

And coming up on its four-year anniversary as a publicly traded company, there is reason to believe Facebook's highflying stock can push even higher, beginning with its first-quarter results, due Wednesday.

Analysts polled by FactSet expect adjusted earnings of 62 cents a share, up 48% from a year earlier. Revenue is estimated to have increased by 48% to $5.3 billion. Facebook has exceeded quarterly estimates all but once since its May 2012 initial public offering.

Facebook's transition to mobile has been meaningful. About 80% of advertising revenue in the fourth quarter came from mobile, up from less than one-quarter just three years ago. And Facebook's average revenue per user surged 33% at the end of last year, continuing its upward trajectory. That helped Facebook earn more than $1 billion in net income in the fourth quarter.

Granted, that sets a high bar in what has already been a tough market for tech stocks. Many of Facebook's peers, including Microsoft Corp., Netflix Inc. and Google owner Alphabet Inc. as well as stalwarts Intel Corp. and International Business Machines Corp., have disappointed this earnings season.

Highfliers are particularly vulnerable to disappointment, but Facebook, a historically pricey stock, is looking less so these days. Fetching 32 times projected earnings over the next 12 months, Facebook looks like a bargain relative to its short history on the public markets.

For instance, its forward multiple was nearly twice as high following its 2012 trading debut. And when the stock bottomed below $20 later that year, Facebook fetched a multiple comparable to today's. Notwithstanding the trading hiccups and subsequent slump after Facebook's IPO, the stock has surged ever since, increasing at about a 30% compound annual clip.

High expectations are nothing new for Facebook. There is still a lot to like here, though.

(END) Dow Jones Newswires

April 26, 2016 11:55 ET (15:55 GMT)

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