Facebook's Social Climbing Has Its Price

By Dan GallagherFeaturesDow Jones Newswires

Five years ago, Facebook had some trouble convincing investors it was worth $100 billion. The social network is worth more than four times that value now, and hence has an even higher bar to clear.

Consider the reaction to what was another strong set of results Wednesday. Facebook's first-quarter revenue jumped 49% to $8 billion -- beating Wall Street's already high projections calling for 46% growth. Operating income surged 66% to $3.3 billion. User growth -- no small matter for a company that already serves one-quarter of the Earth's population -- continued unabated. In just the past three months, Facebook has netted about 57 million new users who check the site at least once a day.

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Still, Facebook's stock fell roughly 3% following the report, as its reported earnings per share appeared to fall short of Wall Street's consensus target. But that forecast didn't count the effect of stock-based compensation, which Facebook rightfully no longer excludes. Investors have also bid Facebook's stock up 32% since the first of the year, putting the stock around 33 times forward earnings ahead of the report.

That sets a big target for what is now the world's fifth most valuable company to hit. Investors also seem to have conveniently ignored company warnings about slowing growth ahead. Facebook's recent efforts to address the broadcast of heinous material on its network highlight another challenge that comes along with its enormous size.

Facebook has been clear about its growth challenges and now seems to finally be understanding the cost of its broader responsibilities. Investors look like they may be finally catching on.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

May 03, 2017 18:30 ET (22:30 GMT)