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Facebook proves Fed wrong with quarterly profits up 138%

Facebook proves Fed wrong with quarterly profits up 138%
Facebook showed a 138 percent increase in Q2 profit compared to 2013 sending shares to a record high of $75.13 in after-hours trading on Wednesday. The results refute the boss of the Fed Janet Yellen’s concerns about overvaluation of social media stocks.

The value of the world’s biggest social network reached roughly $190 billion, putting it on par with IBM currently ranked 35 th in the Forbes Global 2000 list of biggest public companies.

"It might be more expensive from a market cap perspective, but I don’t think anyone was expecting this level of profitability," Reuters quotes JMP Securities analyst Ronald Josey.

Revenue for the second quarter of 2014 totaled $2.91 billion, an increase of 61 percent, compared with $1.81 billion in the second quarter of 2013. The result was driven by the rapidly growing mobile advertising business which contributed the lion’s share of the revenue, $2.68 billion.

Facebook has currently 1.5 billion customers, with strong growth across all of its geographic regions, Reuters cites Sheryl Sandberg, the company’s Chief Operating Officer.

"We’re seeing our existing advertisers spend more and we’re seeing new people come on to the platform," Sandberg said.

The social media network has 1.32 billion monthly active users (MAUs), with roughly 63 percent accessing the service every day.

Last Tuesday Chair of the Federal Reserve Janet Yellen made an uncarefull remark about asset prices in such industries as social media and biotechnology. She hinted at a possible bubble in the areas, which sent shares of Facebook and Twitter more than 1 percent lower during the day.

The Global X Social Media Index fell roughly 1 percent and made the iShares NASDAQ Biotech Index fall by 2.2 percent.

“…the valuation metrics in some sectors do appear substantially stretched - particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year,” Yellen said on July 15 in her report on the US monetary policy.

The statement caused a lot of criticism, with Steve Liesman the CNBC senior economics reporter saying in his Twitter back then that such direct references to specific stock sectors were rare, suggesting that nothing like this has happened since 2000.