WASHINGTON, DC — Facebook‘s  (NASDAQ: FB.US)  mobile usage is growing at a rapid rate and its fundamentals are following suit. Facebook’s leading position is surging as the company now has more than 1.23 billion users.

And the company’s users remain very engaged with roughly 62% of total users using Facebook every day. The company has diversified its social media presence well with Instagram, which now has has an estimated 180 million MAUs, doubling its user base in 2013.

Strong numbers across the board

Facebook enjoyed accelerating revenue growth in 2013, which is rare for a big company. The company’s sales stood at $7.9 billion which was a 55% year-over-year increase. Its diluted earnings per share for 2013 stood at $0.60 a huge increase from 2012. Facebook’s cash balance grew to $11.5 billion, as the company raised an additional $1.5 billion with an additional offering, and this gives the company more flexibility to pursue inorganic growth opportunities through M&A activity.

The company’s margin expansion has led to strong growth in free cash flow, which grew to $2.85 billion in 2013. Facebook’s revenue growth from the payments business has not been growing and stood at $241 million last quarter. However, advertising revenue grew by more than 65% in all its geographic segments.

The number of ad impressions on Facebook’s platform declined by 8% but were easily offset by a 92% increase in ad pricing. Ad impressions declined because the company shows fewer ads on mobile relative to desktop, but the pricing of ads increased because of higher engagement and click-through rates on mobile devices. Facebook’s average revenue per user, or ARPU, grew to $6.81, which represents a 28% increase from 2012. 

Mobile growth is phenomenal

The pop of the stock was not only due to the big beat of estimates, but also because of the company’s solid growth on mobile devices. Total number of users logging on through mobile devices stood at 77%, which is a big increase from the 59% last year. For the first time in Facebook’s operating history, advertising revenue on mobile devices surpassed desktop ad sales.

Twitter (NYSE: TWTR.US)  also has a strong foothold on mobile devices. Roughly 76% of Twitter’s total user base, (232 million users), access the site through mobile devices. As a result, Twitter earns 70% of its advertising revenue from mobile. On a comparative basis, Facebook earned 53% of its advertising revenue from mobile devices, and should earn more from mobile in the future.  

Facebook’s quarterly revenue on mobile devices crossed $1 billion dollars for the first time as mobile ad sales grew roughly 306% year over year to $1.24 billion. In the last quarter, Facebook’s Mobile MAUs grew 39% year over year to 945 million, and the company’s mobile audience is a lot more engaged relative to its desktop members.

Facebook’s CFO disclosed that the number of daily users on mobile outnumbered desktop users by roughly 200 million. And the company’s CEO Mark Zuckerberg seems to be very excited about coming out with more engaging mobile experiences.  In fact, Facebook just announced Paper, which is an app that aggregates and brings together different stories in one layout. 

Advertisers are diving in

The number of small and medium businesses with an active Facebook page have surged to more than 25 million, and the company is offering more simplified advertising options to these businesses to convert them into paying marketers.

Facebook is aiding more developers to acquire new customers through mobile app-install ads and it remains a growing revenue stream. In addition, the company is working with various brand marketers and helping them to reach their desired consumer groups. Facebook is testing video ads with select brand marketers to determine the impact on sales and this will likely be rolled out on a much broader scale.

The company’s measurement and targeting tools have been crucial for its strong revenue growth in 2013. Facebook’s custom audiences product is enabling marketers to choose their target customers in a very precise way and is generating strong ROI for advertisers. Ads placed on the Facebook newsfeed have done very well for marketers on both mobile and desktop. This is appealing to newer advertisers.

Going forward

Facebook’s scale and reach has hit unprecedented levels. The social media site is the only platform where more than 750 million users tune in everyday, and this provides the company with a lot of useful data for their advertising clients.

Facebook’s strong growth in revenue was driven by more newsfeed ads, higher consumer engagement, and both these drivers are likely to continue to grow. In addition, it still has a number of future earnings drivers like Instagram and video ads that will propel the business.

The post Facebook Inc: More Room To Run appeared first on The Motley Fool UK.

More reading

• Down 23%! Should I buy Meta Platforms for my ISA or SIPP?
• Why Meta Platforms shares fell 12.5% in March
• Down 31%, is this a rare chance to buy Meta stock for my ISA cheaply?
• £10,000 invested in Meta Platforms Stock 5 years ago is now worth…

> Ishfaque owns shares in Facebook.

WASHINGTON, DC — Apple  (NASDAQ: AAPL.US)  is still a relatively undervalued company, and big name investors like Carl Icahn are still singing the company’s praises. The company is expected to see solid earnings growth over the holiday quarter and its deal with megacarrier China Mobile should drive upside in the first quarter of 2014.

Icahn, Apple’s fanboy, is pounding the table and urging the company to ramp up its share repurchase plan and drive value for shareholders. And as a testament to his claim, Carl Icahn ramped up his stake in Apple by $600 million and now owns roughly $3.6 billion in Apple stock. 

Significantly cheaper than the overall market

Icahn’s proposal to the Apple board is predicated on the company’s cheap valuation relative to the S&P 500. The S&P 500 is trading at a multiple of roughly 19 times earnings, whereas Apple is trading at almost 14 times earnings. If Apple trades at the market multiple the value of the company would be north of $750, which represents significant upside from current levels. 

To narrow this valuation disconnect, the activist shareholder wants the iPhone maker to ramp up its share repurchase program to $50 billion in fiscal 2014. It’s worth noting that Apple has roughly $37 billion worth of share repurchases left to execute until fiscal 2015, but Icahn wants another $50 billion on top of the existing program. 

There’s a lot of truth to that claim of undervaluation, because Apple’s CEO, Tim Cook, has stated in a number of occasions that Apple remains undervalued. If that is the case, the company can generate significant amounts of value for long-term shareholders by buying back its own stock at a cheap level and reducing its share count.

Icahn stated that the management is doing a great job, but its Board of Directors is doing “a great disservice to shareholders.”  Apple’s board should be more opportunistic in buying Apple stock at cheap valuations. Apple does have enough liquidity resources to go about running its business and pursuing other strategic M&A opportunities as well. The company has roughly $130 billion in net cash, and this overcapitalization is not generating any value for stockholders.

Ample liquidity and robust outlook

In spite of operating in an extremely competitive landscape, Apple has been doing very well due to its rapid pace of innovation. Apple recently signed up a number of big carriers including NTT Docomo in Japan, China Mobile and Russia’s second biggest mobile phone operator, Megafon.

Under the just-concluded deal with Megafon, Apple signed a three-year deal to supply various models of iPhones. Apple had only 9% of the mobile units sold in Russia in 2013, according to Euroset, so unit sales should be growing in the Russian market. Apple’s deal in Japan should also be very profitable for the company. The company has the highest segment operating margins from its Japanese operations, which amounted to more than 50% operating margins in fiscal 2013. 

The company’s outlook remains very robust, with Apple expected to generate a ton of cash and have consensus earnings of close to $40 billion in the current fiscal year. Such excess liquidity in the company’s balance sheet warrants the company to issue debt in the current low interest rate environment and take opportunistic advantage of the company’s cheap valuation in the stock market. 

Icahn stated that his company upped its stake in Apple by buying $1 billion worth of Apple stock in the last two weeks, bringing his Apple stake to approximately $3.6 billion. Given Apple’s tremendous borrowing ability, Apple should repurchase $50 billion worth of stock in fiscal 2014 by issuing additional debt.

Consumer loyalty

Apple has a been a leader in innovative consumer electronics products and managed to amass very high customer loyalty. This loyalty represents one of the company’s greatest assets.

The company’s brand value and global reach will ensure that future Apple products are well received not only in the U.S. but across the globe. The market for smartphones and tablets is expected to grow significantly in the next few years, and Apple along with Google  (NASDAQ: GOOG.US)  are well positioned to capitalize on this growth.

Samsung has made itself very dominant using Google’s Andriod OS, but its focus has been mostly on the mid and low tiers of the consumer funnel. Apple’s pricing and products are mostly directed toward higher end consumers. Its massive customer base of more than 575 million enables the company to charge much higher prices for its products relative to its competition. This allows it to maintain very strong gross margins to the tune of roughly 37%.

As consumers ramp up their software and service demands on Apple’s App store and iTunes, customer loyalty will only increase and drive more value for Apple’s earnings. 

Going forward

Apple has built up a massive ecosystem of software, hardware and services that gives the company a massive edge in launching newer products. Its huge customer base represents a major asset for the company. New product options including newer categories like TVs, wearable devices, and a payments platform are all realistic product lines for the company in the near future.

Because it features so much upside in its core business and a reasonably cheap stock, Apple should consider Carl Icahn’s proposal. If the company’s shares surge above $600, the value of the share repurchases will fall dramatically. As a result, the company should be more opportunistic in capitalizing on its undervalued stock now.

The post Is Apple Inc. A Buy On Carl Icahn’s Plan? appeared first on The Motley Fool UK.

More reading

• I’m getting ready for a dramatic stock market crash

> Ishfaque does not own shares in either company mentioned. The Motley Fool owns shares in both Apple and Google.