Facebook's stock continues to rebound and is up 18% so far for the year.(Photo: Paul Sakuma, AP)
In a dramatic about-face, Facebook (FB) stock has transformed from Wall Street weakling into one of the market's emerging stars.
of the No. 1 social-media company are on a tear, blasting through the
$30 level this week to close at $31.30 Thursday. Facebook shares have
rocketed more than 78% from their low notched on Sept. 4, 2012, and are
up almost 18% this year alone.
Investors are realizing that many
of their worst fears about the company, fanned by a poorly handled
initial public offering last year, are slowly becoming advantages as the
company finds new ways to turn its massive audience into dollars.
"It's a new year for Facebook," says Arvind Bhatia at Sterne Agee. Facebook stock "has been a strong performer."
sharp and sudden jump in Facebook's shares has taken many investors by
surprise, as doubts about the company's ability to compete in a world
dominated by mobile devices rose. Doubts are being silenced by:
•High hopes over the company's mysterious meeting next week in Silicon Valley. The
most recent spike in the stock is being fanned by the company's
enigmatic announcement about a Jan. 15 event. Analysts are torn on what
it might be.
An update to the company's mobile Facebook apps for
smartphones and tablets is a possibility, says Colin Sebastian of Robert
W. Baird. Bhatia, though, suspects Facebook might announce a search
feature that will position it to take a bigger piece of the online
•Optimism about the company's fourth-quarter profit. Facebook
is expected to report its quarterly performance on Jan. 30, 2013, and
investors are looking for positive news. Analysts are calling for the
company to earn 15 cents a share on an adjusted basis, up from the 12
cents a share the company reported on an adjusted basis in each of the
previous two quarters.
Using official accounting rules, Facebook
is expected to earn 2 cents a share, reversing quarterly losses on the
same basis the previous two quarters. "Investors are looking for
companies with positive momentum going into 2013," Sebastian says.
•Strength of the stock off the bottom. Facebook
shares were due for a rebound since they were beaten down so badly,
Sebastian says. The stock's low of $17.55 set in September was a
culmination of doubts about how the stock would react to the massive
lockup expirations, which allowed early investors and employees to sell
after the IPO, he says. Also, questions about the company's mobile
strategy were a problem. Both concerns have been put to rest, Sebastian
Even so, the stock is yet to regain its $38-a-share May 2012
IPO price, meaning that early investors are still in the red. And while
shares are down about 20% from the IPO price, they're still not cheap.
company has a market value of more than $65 billion and trades for 158
times its trailing earnings per share excluding special items, says
S&P Capital IQ. Rival Google trades for 23 times earnings on that
But with Facebook's prospects brightening, the stock "looks like it still has upside," Sebastian says.