Facebook (Nasdaq: FB) Stock Zooms - But Don't Let Earnings Fool You

Facebook (Nasdaq: FB) stock is up more than 30% today as investors applaud the second-quarter earnings report released yesterday (Wednesday).

Investors were thrilled to see FB earnings improve from previous disastrous quarters, and their exuberance pushed Facebook stock above $30 a share for the first time since January.

But, before you think FB stock is now the hottest investment of 2013, take a closer look at what's going on.

First off, some of the gains are very likely thanks to a short squeeze. Heading into the release, some 39,754,124 FB shares were sold short, making it currently one of Nasdaq's most heavily shorted stocks.

Volume suggested a race to cover shorts was in play.

And despite the solid gains, Facebook stock still isn't trading over its May 2012 IPO price of $38, a level not seen since the famously flawed debut.

"Bottom line to me is Facebook may prove to be a great short-term trading opportunity, but I remain absolutely convinced it has no place in a long-term investor's portfolio," Money Morning Chief Investment Strategist Keith Fitz-Gerald said. "Where's Eastern Airlines today? Where's Palm Inc.? Research in Motion (Nasdaq: BBRY)? AOL Inc. (NYSE: AOL)? Myspace?"

While some investors get lured into this Facebook exuberance, here's why Fitz-Gerald warns against it.

Sure, Facebook Earnings Weren't Bad...

FB stock opinion aside, there's no question this was the best Facebook earnings report since the company went public.

The social media giant posted earnings of $0.19 a share, a nickel better than forecasts, and up from $0.12 a year earlier. Revenue climbed to $1.81 billion, also beating projections of $1.62 billion, and up 53% from $1.18 billion a year ago.

The big question on everyone's minds was how the Menlo Park, CA-based company tackled mobile. Facebook was late to the mobile arena and has been playing catch-up since. It finally appears as though it's making headway.

Mobile advertising revenue accounted for roughly 41% of Facebook's $1.60 billion in total advertising revenue in Q2, up from 30% in the first quarter.

"They've taken three or four quarters to try to fix the mobile issue," RBC Capital Markets analyst Mark Mahaney told CNBC. "They've gone from zero of their revenue being mobile to almost 50% now. That's pretty good evidence that they've fixed the mobile issue."

The mobile monthly active user tally at the end of the quarter was 819 million, up 51% year-over-year. Daily active mobile users averaged 469 million in June.

The overall daily active user count grew at a more modest pace, up 27% to 699 million on average for June, while monthly active users averaged 1.15 billion at the end of Q2.

The efforts stemmed from some deliberate Facebook moves to morph the company into a truly mobile-focused operation.

"The investments we have made over the past year are really paying off to position the company to thrive in a mobile world," David Ebersman, Facebook CFO, told CNBC.

But, Investing in FB Stock Still Isn't Good...

We here at Money Morning give Facebook CEO Mark Zuckerberg the proverbial "pat on the back," but we still don't think these shares are a good "Buy."

"From the headline hype this morning, you'd think that Moses had parted the Red Sea again, and that Zuckerberg was ready to walk on water," said Fitz-Gerald. "But I think if you look behind the numbers, a couple things are really apparent, things long-term investors can't ignore."

"Number one, there really weren't any comps last quarter, so it's only natural that they have some big upside numbers to report, when coming off a low base," said Fitz-Gerald.

The "comps" he's referring to are the mobile growth and revenue numbers from previous quarters - which were so low, they make any growth now appear phenomenal.

"Number two, the company appears to have solved the mobile user problem, but I think they're going to run up against competition for eyeball time and additional applications," he continued.

While Facebook's explosive growth phase saw phenomenal numbers that caught the eye of money-hungry Wall Street players and eager tech followers, that phase is over.

"The law of natural selection says there are only a finite number of people on this planet. And the first law of natural selection is that exponential growth can't continue forever," Fitz-Gerald stressed.

As more social media businesses come to market, they'll be going after Facebook's customers - meaning that user base could not just plateau, but decrease.

For the company, without an increasing user base, the biggest long-term challenges remain: How to keep its user base spending, how to avoid trouble from the massive amount of personal data is has collected, and how to profit overseas.

The bulk of its revenue still comes from North America, and to a lesser extent Europe.

North American ad revenue slipped to 45% in Q2 from 48% in the prior quarter, perhaps a sign that Facebook is diversifying its geographical revenue reliance. But revenue per user in Asia, a key territory because it has the potential of offering explosive growth, was just $0.68 versus $3.76 in North America.

Facebook is still is spending a lot of cash on experimental ad formats, programs and platforms. Yet, many of these costly endeavors won't stick.

So, Instead of Investing in FB Stock...

As for competitors, there are many and they are growing - but none are as intimidating as Google Inc. (Nasdaq: GOOG).

For all of last year, Facebook took in about $5 billion revenue, a little under one-tenth of what Google pocketed.

Moreover, in the mobile advertising business, Google reigns.

In 2012, Google took in more than half of all mobile ad revenue. That number is expected to swell to 56%, or $8.84 billion, this year.

Facebook earned just $470 million in mobile ad revenue in 2012. That number is expected to grow to $2.04 billion in 2013, but Facebook still remains a mere shadow in Google's path.

So, great job Team Zuckerberg on a great quarter - but we're still going to pass on investing in FB.

While Facebook (Nasdaq: FB) stock is still trying to catch its $38 IPO price, GOOG is up 46% in the past year. Here's why Money Morning Tech Specialist Michael A. Robinson calls Google "The Only Tech Stock You'll Ever Need."

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