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Facebook's shares will reach $90 in medium term

Recently Facebook, an operator of the world largest social networking website, issued solid report for the fourth quarter of 2014. Revenues increased 49% y-o-y to $3.85 bn and surpassed consensus estimate of $3.77 bn. The growth was driven by strong advertising revenues that soared 53% to $3.7 bn on the back of increasing mobile engagement, higher number of marketers, continuing investment in new products and robust performance of its newsfeed ads. Mobile advertising revenues represented 69% of advertising revenues, up from 53% in the year-ago quarter. Adjusted operating income jumped 48% y-o-y to $2.22 bn, and adjusted operating margin was flat at 58%. Adjusted earnings per share surged 69% y-o-y to 54 cents, beating analysts’ average forecast of 48.5 cents.

As of December 31, 2014, Facebook’s Monthly Active Users (MAU) improved 13.4% y-o-y to 1.39 bn, with mobile MAUs increasing 25.8% to 1.19 bn. Daily Active Users (DAU) rose 17.6% to 890 mn, and mobile DAUs grew 34% year over year to 745 mn. Average revenue per user (ARPU) increased to $2.81 in the fourth quarter from $2.14 in the year-ago period.

Facebook exited 2014 with cash & cash equivalents and marketable securities of $11.2 bn. The company generated $5.5 bn of cash flow from operating activities in 2014 compared with $4.2 bn a year ago. Free cash flow for 2014 was $3.6 bn compared with $2.8 bn in 2013.

My outlook for Facebook remains positive. The company has gained significant traction in its mobile ad business within a very short span of time. This, combined with the massive user base and its ability to track personal details over time, makes it a formidable force in the online ad market. However, overdependence on advertising revenues for growth can be a headwind in the near term.Notably, both WhatsApp and Oculus are long-term growth opportunities, and the Internet.org initiative is also long-term focused.

With target price of USD 90, Facebook’s shares, I believe, look nice for medium-term investment.