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Facebook Still Overvalued Despite Remarkable Results

Although revenue surged in its mobile segment, the social-networking giant will experience slowing growth in the future, says Morningstar's Rick Summer.

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Rick Summer: Facebook announced first-quarter earnings today, which were really remarkable, once again. They came in at about $2.5 billion in overall revenue, 70% versus last year, so clearly taking a lot of share from some of the laggards like Yahoo, if you will.

Probably even more impressive, we are looking at mobile. Mobile revenues were 59% of total advertising revenues. So, in terms of a mobile juggernaut, clearly Facebook is there. They have fantastic assets that they are really leveraging that wide moat of their firm.

So, from a valuation perspective, though, we would really encourage investors to look elsewhere. We do think that clearly growth ultimately slows. These 70%-80% growth rates don't persist and the question is how quickly does it slow and over long time frame. We look at Google as being a much safer investment. At this level, it's a little bit more appropriately valued, and we would encourage new investors to look there.

Rick Summer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.