Facebook Now TRULY a Mobile Company, Beats Expectations
Facebook CEO Mark Zuckerberg got straight to the headlines, and they were all about mobile. He kicked off the earnings call by saying that 2012 was a big year because for the first time "more people are using Facebook on mobile every day than on the desktop." He said that this transition has been "challenging for us to navigate" but that after investing in the mobile experience, "we're coming out of the year with a strong foundation and a lot of momentum."
Facebook's mobile stats are pretty striking –Facebook's mobile monthly active users grew 57 percent from a year ago to 680 million. Facebook's mobile ad revenue doubled from the third to the fourth quarter, now comprising 23 percent of ad revenue. And Facebook points to a ComScore report that over a quarter of time spent on mobile apps is spent on Facebook and its Instagram.
The company beat earnings expectations, reporting non-GAAP earnings per share of 17 cents, two cents more than expected. The social network grew revenue 40 percent to $1.585 billion, also higher than expectations. So why did the stock drop as much as seven percent lower after hours, rebounding to just a few percentage points below where it closed the day?
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After the stock skyrocketed over 40 percent in the past three months, expectations were high, and investors could have been looking for a bigger beat. Analysts have been ramping up estimates and expectations, and some analysts projected that an even greater percentage of overall ad revenue would come from mobile.
After the earnings call I spoke to CFO David Ebersman, who wouldn't explain the stock's drop, just saying "the stock's run up a lot in the past few weeks, for us these were really strong results. We were really encouraged by what we were able to deliver in the fourth quarter, it was a really good validation." I asked Ebersman about the fact that GAAP operating margin in the fourth quarter was 33 percent, down from 48 percent a year earlier. But he clarified that it's an apples-to-oranges comparison because before the company went public it didn't include stock compensation, even in GAAP results, which throws the comparison off.
On the earnings call Zuckerberg made a point to "temper expectation around monetization" from everything other than ads. He said "for the next few months our work around ads will have the biggest impact on revenue." And both Zuckerberg and Sandberg went into some detail about how new ad formats, better targeting, and better measurement will help both advertisers and users, while boosting Facebook's coffers.
(Read More: Why Street Has Confidence in Facebook)
So what about other products like gifts? And Graph Search? Zuckerberg says they are "things we want to invest in aggressively for the long term." Translation: we won't see immediately impact on our bottom line, but they'll be worth the investment over time. Ebersman told me "the focus has to be on creating a great user experience, making [gifts and graph search] interesting and userful. We're just starting to figure out how to make them fit with the Facebook flow."
When Zuckerberg talked about the fact that Facebook has added 1.400 employees in the past year, he reiterated the message about long term growth, saying "we aren't operating to maximize our profits this year, we are planning for the long term."
Ebersman also went into detail about how Facebook is investing in advertising revenue growth: "The scale we offer, a billion users, 600 million mobile users, the information we have, all those things are really attractive to advertisers. If we can continue working with them to display the rights ads to the right users," Ebersman told me, " we think we can deliver a big return that transforms how consumers and marketers connect."
And on the earnings call COO Sheryl Sandberg went into great detail about how brands are using Facebook and how well it's working. It all comes down to the importance of newsfeed ads, which of course show up on mobile devices. Sandberg stressed the point that traditional methods of measuring ads are increasingly irrelevant, saying "the click is not the important metric for us." She noted that Facebook can measure how ads impact in-store behavior, and that most people who walk into a store after seeing an ad, have not clicked on it.
(Read More: Facebook Leaves Unanswered Questions: Analyst)
Zuckerberg made an interesting note on the call about Facebook's frenemy: Google. He praised Android as "a dynamic open platform, as long as Google keeps it that way." He said that the relationship with Google is "not one where we really talk." This was part of an overall message that Facebook doesn't want to build its own phone but rather wants to make sure that its service works well on all platforms and devices.
—By CNBC's Julia Boorstin; Follow her on Twitter: