Facebook Earnings Beat, Shares Sink: What’s the Deal?

While perusing Facebook's (FB) fourth quarter earnings results, the volatile after-hours trading, and mixed analyst reactions, I got to thinking about tennis --specifically, an incredible 45-shot volley a few years ago between Roger Federer and Lleyton Hewitt that exhilarated the fans and exhausted the players.

In much the same way, it seems Facebook's better than expected quarterly results, of $0.17 per share and $1.59 billion in revenues, have sparked a veritable tennis match of reaction that, in the short term, has left investors in the lurch. As my co-host Jeff Macke and I discuss in the attached video, every pro seems to be met with a con, every upside can be seen as a shortcoming.

"There's nothing to get that excited about. It's not a howling sell or buy. I think the volatility is more of a concern," Macke says.

While at least four analysts downgraded the stock prior to the start of trading today, nearly 70% still rate the stock a buy, with median price target of $32.70 a share, according FactSet data. Even here, there is room for debate, as overwhelming bullishness begets only about 10% upside from current levels.

Breaking down some of the key metrics, the good-bad battle goes on, particularly on the all important mobile user front. The company touts the fact that for the first time ever, more daily active users accessed the site last quarter via smartphones or tablets than PCs and that mobile ad revenue now accounts for 23% of total ad revenues.

The downside, as Macke points out, is that the biggest part of their business is shrinking.

While Amazon (AMZN) gets lauded for its aggressive reinvestment in its business, Facebook is scrutinized for it. Of course, Facebook has only been a public company for 9 months and young CEO Mark Zuckerberg hasn't established the credibility of his more-seasoned peer Jeff Bezos.

In the end, you are left to decide if the 75% rally which preceded last night's earnings announcement took most of the value out of the stock, or if it simply showed that there's lots of upside left. As much as Facebook is making progress at growing and diversifying its revenue base, the risk of Facebook fatigue is real if the look and feel of the services changes more than its 1.06 billion users can tolerate.