Reading Facebook

Facebook has been outperforming Wall Street analyst expectations for revenue and earnings during the past few years, and analysts expect the company to grow its earnings by about 35 percent annually over the next five years. It’s not unthinkable, as the social network has grown earnings by an average of 69 percent a year over the past five years, while sales have increased by 55 percent annually. That’s impressive.

Many of Facebook’s numbers are staggering. It boasts more than a billion daily active users around the world. It has been quite successful at monetizing its heavy traffic, as its annual revenue of more than $20 billion attests. Its net profit margin topping 30 percent is also impressive.

Facebook is getting better at milking more ad revenue out of its users. Advertisers are seeing the social hub as crucial to their marketing campaigns, and they’re paying more to use it. In its latest quarter, monthly active users may have risen by a modest 15 percent over the past year, but Facebook’s ad revenue soared 63 percent.

Facebook’s stock doesn’t look like a bargain, with its price-to-earnings ratio recently near 61, but rapid growers tend to have steep P/E ratios. Its growth is likely to slow as it gets more immense, but the stock is poised to reward patient risk-tolerant believers. (The Motley Fool owns shares of and has recommended Facebook.)