Facebook Aftermarket Trades Indicate Concerns

Facebook (FB) delivered a strong quarter this afternoon. The numbers met analyst estimates, by and large, but the stock was trading down 1% after hours.

What is the reason? This stock has a market capitalization of above $200 billion and a stock price of above $80. Congratulations to all the longs who had bought this name at $17 two years ago. You're now sitting on a quintuple. To go higher, Facebook needed a strong beat and raise, and it didn't deliver that despite the positives.

The earnings were a slight beat of Wall Street expectations, and so was the revenue. This was the first $3-billion quarter in Facebook's history, but Wall Street was expecting more.

Here's the big problem: monthly active users (MAUs) were up only 1.4% sequentially to 1.35 billion. That's the slowest growth rate sequentially ever. Another data point that concerns me is usage growth. The initial reading of the data suggests that although there are still opportunities for Facebook to drive more ad revenue (from video, etc.), one-fifth of the world is already on Facebook. Has Facebook hit peak usage?

The mobile ad business is now ticking along at an $8-billion rate. That's big. How much of that is from mobile ad installs? We don't know, because Facebook won't disclose it. Presumably, it's a lot. This means the business would be under pressure if the venture capital market ever dries up, although that seems unlikely in the short to medium term. Mobile ad revenue is now 66% of Facebook's overall revenue.

The big thing to listen for on the earnings call will be guidance. Where is the company at with expenditures, and how will that relate to future profitability? This will likely be a big driver of the stock price tomorrow.

At the time of publication, Jackson has no positions in any securities mentioned.