- 1Q14 Was Solid: FB beat revenues by 6%, producing its strongest y/y advertising growth in ~3 years. Mobile now represents the majority of Ad revenue (~58%) vs. 30% in 1Q13. Growth in Monthly Active Users (MAUs) & Daily Active Users (DAUs) continued at a double-digit pace; with engagement (DAUs as % of MAUs) hitting a new high of 63%, continuing an upward trend that has persisted since at least 1Q10.
- 2014 to Revenue Growth to Slow "meaningfully": Management suggested that the timing of the ramp in News Feed Ads last year will lead to tougher comps through the rest of the year, and ad revenue growth rates will be meaningfully lower by 4Q14. Further, the user shift to mobile will pressure its Payments & Other Fees segment since the games that drive this segment are desktop only. Consensus is already assuming decelerating growth; we're not deep enough on the name to take a stance once way or the other.
- Trading at Massive Premium to the Group: We value the social media players by discounting their P/S Ratios by consensus growth expectations. In this respect, the street is paying a much higher premium for FB's growth than the rest of the group, which suggests FB has less room for error moving forward.
Hesham Shaaban, CFA