1st earnings report from Facebook doesn't impress

Posted: July 28, 2012

NEW YORK - Facebook Inc.'s first earnings report as a public company had solid numbers, but in the end it landed with a thud - much like its rocky initial public offering two months ago.

Facebook reported stronger-than-expected revenue and a gain in user numbers Thursday. But investors weren't impressed, and, after a brief spike, its stock fell more than 10 percent, or $2.74, to $24.10 in after-hours trading. That means Facebook's stock will most likely open Friday at its lowest level since going public.

It's another big disappointment for the Harvard-born company that was supposed to usher in the next Internet boom.

"They didn't break any banks," said Debra Aho Williamson, an analyst at research firm eMarketer. "They did not come out any better than anybody had expected."

Even so, Facebook said revenue grew 32 percent to $1.18 billion from $895 million a year ago. Adjusted earnings of $295 million, or 12 cents per share, matched Wall Street's expectations.

Analysts on average had expected slightly lower revenue of $1.16 billion, according to FactSet.

Facebook said it had 955 million active monthly users as of June 30, up 29 percent from a year earlier.

Overall, the Menlo Park, Calif., company posted a loss of $157 million, or 8 cents per share, in the April-June period, mainly due to compensation expenses it incurred when it paid $1.3 billion in restricted stock and related taxes for employees as part of the IPO. The loss compared with earnings of $240 million, or 11 cents per share, in the second quarter a year ago.

The results come two months after Facebook's stock flopped on May 18, its first trading day. The day began with glitches with the Nasdaq stock market that delayed trading by a half-hour. Things didn't get much better. Despite months of hoopla that had led investors to think it would soar, the stock closed just 23 cents above its $38 IPO price. It has not reached that level since.

Though Facebook had a lot riding on its first public report, Wall Street's outlook was muted, which could be a reason for the stock's decline.

Investors were likely hoping that Facebook would far exceed expectations - even though the company effectively warned investors before its IPO that Wall Street's expectations were too high. In a filing issued a week before its IPO, for instance, Facebook said its mobile users were growing faster than the number of ads on its mobile platform.

Analysts took that as a sign their estimates were out of whack, and many reduced estimates for Facebook's projected revenue and earnings.

That said, Facebook didn't start showing ads on its mobile app until the spring. Though it's true the company was late to the game, that doesn't mean it won't be able to grow mobile advertising revenue.

In a conference call with analysts, chief executive officer Mark Zuckerberg said Facebook's mobile users were more active than those who use the personal-computer version.

"On average, mobile users are around 20 percent more likely to use Facebook on any given day," he said. "So mobile not only gives us the potential to connect more people with our services and also gives us the ability to provide more value and more deeply engaging experience."

Overall, Facebook said its revenue from advertising totaled $992 million, a 28 percent increase from the same quarter last year. That ad revenue accounted for 84 percent of total revenue. The company did not say what portion was from mobile advertising.

Facebook did not provide an outlook in its earnings news release, another possible reason for investors' disappointment.

Facebook shares had closed down 8.5 percent, or $2.50, at $26.84 before the earnings report.

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