Two Facebook graphs Wall Street analysts and investors should ignore

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Wall Street likes data. Annual reports and quarterly reports move markets. If Wall Street could access daily data on the ins-and-outs of a company, it would. Hedge funds have been known to use analysis of satellite imagery of Wal-Mart parking lots to try to get a jump on the markets.

That micro level of analysis isn’t going to be very helpful in predicting Facebook’s future. For example, here are two of the types of charts that Wall Street analysts look at:

This chart plots average revenue per user (ARPU) for Facebook on a quarterly basis. This number jumps around a bit. I expect that in the short term, it will drop as Facebook growth focuses on users in markets where online advertising isn’t well established.

This chart shows Facebook’s sequential revenue growth per quarter for the last two years. Wall Street absolutely hates seeing zero growth, as happened in the first quarter of 2011. The best quarter the company saw in terms of revenue growth was a year ago, in December 2010.

Some companies will actively manage their numbers to present the picture that Wall Street expects. This can lead to really stupid product decisions. Facebook could track revenue on a daily basis and crank up ads if it looked like it needed more revenue for a quarter. Or the company could take off ads if it thought they were doing too well. It could also stop expanding into new markets that deflate ARPU.

These charts indicate that Facebook isn’t playing those games. The S-1 spells it out:

Our culture also prioritizes our user engagement over short-term financial results, and we frequently make product decisions that may reduce our short-term revenue or profitability if we believe that the decisions are consistent with our mission and benefit the aggregate user experience and will thereby improve our financial performance over the long term.

And with control of 57 percent the voting shares, Mark Zuckerberg can afford to ignore the graphs and build for the long term.

Rocky Agrawal is an analyst focused on the intersection of local, social, and mobile. He is a principal analyst at reDesign mobile. Previously, he launched local and mobile products for Microsoft and AOL. He blogs at http://blog.agrawals.org and tweets at @rakeshlobster.


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