On the morning July 24th, Facebook (FB) was still a cautionary tale. Shares were mired in the mid-$20s, more than 30% below their IPO price and close to 50% below the all-time high print made on that first day of trading. The anger from the bungled initial public offering had faded but there was a lingering suspicion that Zuckerberg's baby would forever be a cautionary tale along the lines of Myspace or Pets.com. "Twitter better not go public," it was whispered, "look what happened to Facebook."
By the next morning Facebook had not only justified its own existence but validated the entire notion of mobile device advertising. When Facebook revealed that it was now getting a full 41% of its revenues from its mobile platform, it justified the existence of companies like Yelp (YELP) which suddenly became a screaming buy as fund managers chased anything "social" and "mobile."
Now that Facebook stock has topped the $45 level that marks its all-time high, the question for investors is whether or not the company can possibly justify Wall Street's love. David Garrity of GVA Research says the jury is still out.
"It's good to see they got the technology right, but one has to argue that what Facebook is doing is riding the wave of the transition by users towards mobile computing," he says. For tech investors that's roughly akin to saying AOL rode the wave in desktop users liking to chat with one another with IM. That's nice but it didn't help make money.
Thanks to Facebook we know there's money to be made by advertising on mobile devices. According to Garrity, youngsters don't even mind when pop-up ads clutter their phones. So there is that. Shareholders, of which I'm one, are betting Facebook can do two things. First, they need to demonstrate to advertisers there's a bang for the buck from the ad spend. Second, Facebook has to continue to drive business from the desktop to the phone.
There aren't any more shocks in Facebook's stock; companies can only justify their existence once. To drive the stock into the $50s, Facebook will need to complete it's transformation. At over $100 billion market capitalization, a failure to execute will result in severe punishment.
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