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On Jan 2, 2014, Zacks Investment Research upgraded Facebook Inc (FB - Analyst Report) to a Zacks Rank #1 (Strong Buy). A strong return of 123.9% over the past six months, long-term expected earnings growth rate of 29.5%, impressive third-quarter results and a positive estimate revision trend make Facebook an attractive investment opportunity.

Why the Upgrade?

Facebook reported strong third-quarter results, beating the Zacks Consensus Estimate on both lines. Earnings of 17 cents per share improved considerably from 6 cents in the year-ago quarter. Revenues surged 60.0% from the year-ago quarter to $2.02 billion.

Mobile comprised 49.0% of ad revenues, up from 41.0% in the previous quarter. The sequential increase in mobile ad revenues was driven by an increase in average price per mobile ad, number of mobile users and ads shown per mobile user.

We note that the company has gained significant traction in its mobile ad business within a very short span of time. This, combined with its massive user base and its ability to track personal details over time, makes it a formidable force in the online ad market.

To boost Facebook usage among teenagers, the company decided to allow users in the age group of 13 to 17 to make public posts, which is a positive. The company also announced that it will restrict ad quantity in newsfeed in order to improve user engagement.

Moreover, the new products such as Video ads and Reader are expected to drive top-line growth, going forward. However, higher investments to expand mobile offerings and increasing competition are expected to hurt margins in the near term.

Estimate Revision

The Zacks Consensus Estimate for fiscal 2013 remained steady at 60 cents per share over the last 60 days. For fiscal 2014, the Zacks Consensus Estimate increased a penny to 87 cents per share over the same time frame.

Other Stocks to Consider:

Other players in the technology industry, which look attractive at current levels, include Netflix (NFLX - Analyst Report), AOL Inc. (AOL - Snapshot Report) and Blucora Inc. (BCOR - Snapshot Report). All these stocks carry the same Zacks Rank as Facebook.

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