Facebook Inc (FB) Upgrade Lifts Social Media Stocks On Tuesday

Social Media stocks surged on Tuesday following the upgrade by Credit Suisse  for Facebook Inc (NASDAQ:FB)’s long term average per user (ARPU), says a report from Reuters. The analysts noted that future products would increase growth in that key metric.

Facebook gets an upgrade

Credit Suisse analysts upgraded the stock to Outperform from Neutral, along with increasing the price target from $65 to $87. Credit Suisse have not given the estimates for ARPU of Facebook Inc (NASDAQ:FB) in a research note to the investors citing that higher growth were to “layer in monetization from the company’s upcoming product releases.”A few weeks back, the Financial times stated that Facebook is gearing up to provide its mobile payment services.

Facebook Inc. (NASDAQ: FB) has recently acquired WhatsApp in a multibillion-dollar deal and this news has caused the stock of the company to slide downwards as they are afraid of losing money. However, this does not have any impact on the profit making ability of the Social Media giant in the Q1 of 2014. When the company will release its quarterly report on earnings on Wednesday after the markets close, it is expected that the earnings growth will be steady as the number of mobile users is increasing day by day, and the advertising to mobile is better now as there are improved tools available.

Q1: What to expect?

According to analysts polled by Thomson Reuter’s, Facebook Inc (NASDAQ:FB) would report a net income of $613 million for the Q1 of 2014. The last year’s net income for Q1 was reported at $312 million. The Earnings per Share is expected to be 24 cents, which is an increase of 99% over the first quarter EPS of 2013. These do not include the onetime events such as the purchase of WhatsApp for $19 billion in February and purchase of Oculus VR in March for $2 billion. Facebook’s earnings will not be impacted by these deals probably as they are not finalized yet.

The mobile advertising was a major contributor to the total revenue of Facebook Inc (NASDAQ:FB) accounting for 50% of it in the last earnings report(i.e. Q4 2013 report), and it is expected that the share will be higher than 50% this time.

Social Media stocks including Facebook Inc (NASDAQ:FB), Twitter Inc (NYSE:TWTR), LinkedIn Corp (NYSE:LNKD), Yelp Inc (NYSE:YELP), witnessed a gain. The Global X Social Media Index ETF surged 1.4 %, yesterday.