Can Facebook sustain its bumper earnings?
Social media giant Facebook reported bumper earnings growth on Wednesday, but some analysts have called into question how long the party will last.
Facebook's stock climbed to an all-time high of $71.29 per share after second quarter earnings substantially beat estimates late Wednesday. The firm posted earnings of 42 cents a share, excluding one-time items, on revenue of $2.91 billion, a growth of 61 percent from the same quarter last year, and generating a profit of $791 million, up from $333 million a year ago.
The firm's active advertising customers had surged to 1.5 million from 1 million last June. Revenue from advertising reached $2.68 billion, a 67 percent increase from the same quarter in 2013, while mobile advertising accounted for 62 percent of advertising revenue for the quarter, up 30 percent from last year.
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"My question is this: with half the world of the internet population already using Facebook; how realistic is it to expect this to continue? I would say that growth is going to slow, that is inevitable," Charles Sizemore, CIO at Sizemore Capital Management, told CNBC Asia's "The Rundown" on Wednesday.
"At this point, it's a question of: are you betting on the horse or the jockey? If you're betting on the horse you are betting that the advertising model is going to work as it continued to work; if you are betting on the jockey, you are betting on [Facebook's CEO Mark] Zuckerberg and his ability to invest in the next big thing. Ninety times earnings and 22 times sales, that's a pretty big bet," he added.
The social media giant has seen exponential growth since it was first launched in 2006, and its stock has risen 87 percent since the firm's listing on Wall Street in May 2012 for $38 per share.
The bumper earnings seemed to put to rest any lingering doubts about Facebook losing popularity with its primary user base – teenagers – and concerns over how its 1.32 billion monthly users would adapt to targeted advertising. Facebook added another 40 million users in the second quarter, with one-fifth of the world's population now logging into the social network at least once a month.
Facebook plans to expand its advertising business further by moving into premium video advertising. Also in April it launched a mobile advertising network which means adverts appear in apps that Facebook doesn't own.
The company has also made a string of acquisitions in recent times, including mobile messaging app WhatsApp in February and more recently - Pryte - a small Finnish firm which helps users in underdeveloped parts of the world gain temporary wireless access to apps such as Foursquareand Facebook, according to media reports.
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According to Scott Kessler, head of technology research at S&P Capital IQ, if the only concern Facebook faces is the ability to sustain exceptional levels of growth then it's a "pretty good problem to have."
"It was a very clean quarter. There weren't a lot of questionable items, confusing issues or areas of concern. That's kind of unique, when you look at the recent earnings reports from Apple and Microsoft by comparison," said Kessler.
"There's no question that all companies eventually succumb to the so-called 'law of large numbers' and Facebook will be no exception… but we think there is a lot of room for improvement. They've only really started in monetizing their user base and engagement levels, particularly in certain areas round the world where perhaps Facebook is newer and perhaps mobile isn't as widely available," he added.
One concern many analysts have flagged in regards to Facebook is the firm's potential to generate revenue in other major markets outside of its primary markets in the U.S., Canada and Europe. The firm still faces regulatory hurdles in countries like China, the world's most populated country, for example, and also in Iran and Syria.
Average revenue per user totaled $6.40 in the US and Canada, $2.80 in Europe, $1.08 in Asia and $0.86 in the rest of the world.
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But Kessler told CNBC that it's a matter of time before Facebook to build business in these geographies.
"Does it concern me? No. Because we've seen this work in the U.S., in Europe and we've seen indications it's working in Asia," he said.