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Facebook Shows Why It's a Giant in the Mobile Space

The social-networking firm's second-quarter ad revenue soared, particularly in the mobile business, but despite Facebook's upward potential, shares are slightly overvalued at current prices.

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 Facebook's (FB) solid second-quarter performance surpassed our expectations for both revenue and profitability, as advertisers continue to increase spending across all geographies. After adjusting our valuation model, we anticipate increasing our fair value estimate by more than 10%, though we consider the shares modestly overvalued at these levels. Even though we see no catalyst for selling the shares, we are hesitant to recommend allocating new money toward an investment in Facebook. Our wide economic moat rating is unchanged.

Although we expect revenue growth to eventually fade, near-term results continue to outperform. Total quarterly revenue increased 61%, led by the advertising segment which grew 67%. Perhaps most importantly, mobile revenue rose 151% over the year-earlier figure. Without question, this company is a current mobile advertising giant, posting approximately $1.8 billion in mobile revenue for the quarter. 

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