Facebook Earnings Hit Target, but Worries Persist

CNBC.com With Wires
Thursday, 26 Jul 2012 | 5:22 PM ET

Facebook hit Wall Street's bullseye on earnings and revenue was a slight beat but the stock fell below its all-time low of $25.52 a share in after-hours trading as worries about its future growth persist.

David Paul Morris | Bloomberg | Getty Images

"The reality is setting in that the negative effects of Zynga and credits business will lead to significantly reduced expectations on that side of the business over the course of the next couple years," said Richard Greenfield, an analyst at BTIG.

During regular-hours trading, Facebook shares fell 8 percent. After the earnings announcement, the company's shares initially rose then pulled back, falling below that all-time low. (Click here to get the latest quotes for Facebook.)

The company posted second-quarter earnings excluding items of 12cents per share on revenue of $1.18 billion.

Facebook posted a net loss of $157 million, or 8 cents a share in the second quarter, due to hefty stock compensation charges related to its IPO, compared to net income of $240 million, or 11 cents, in the year-ago quarter.

Analysts had expected the company to report earnings excluding items of 12 cents a share on $1.15 billion in revenue, according to a consensus estimate from Thomson Reuters.

"There was no guidance provided so the Street was a little irked and annoyed, and that's part of why that stock is trading down," said Herman Leung, analyst at Susquehanna Financial.

Worries about Facebook's report were ratcheted up following a grim outlooka day earlierfrom game-development company Zynga whose games such as "FarmVille" and "CityVille" made up 12 percent of Facebook's revenue last year.

Facebook Q2 EPS $0.12 vs. $0.12 Est.
Facebook earnings hit target. What that mean for the markets, with CNBC's Julia Boorstin & Kayla Tausche; Max Wolff, GreenCrest Capital; and Josh Brown, Fusion Analytics.

Zynga's stock plummeted after its dim outlook prompted several analyst downgrades and questions about its long-term relevance. After the Facebook report, Zynga shares also skidded. (Click for the latest after-hours quote on ZNGA.)

In a conference call following Facebook's earnings report, CEO Mark Zuckerberg said the company was prioritizing mobile — and investing heavily to improve the Facebook experience on mobile devices.

He also said that by the end of June, sponsored stories in newsfeeds was at a run rate of over $1 million per day in revenue — and half of that was from mobile.

In an interview with CNBC, CFO David Ebersman stressed that it's still in the "early days" for mobile revenue and that the company has just ramped up its launch of "sponsored stories" during this quarter.

“In the short term clearly it creates the need for us to think about monetization differently than putting ads in the right hand column.” (Read more on that CFO interview.)

This is Facebook's first earnings report since its botchedinitial public offeringin late May. During its first day of trading, Facebook saw its debut marred by Nasdaq glitches that delayed trading. Since then, the stock has slid from its $38 initial offering price.

In the report, the company said its operating margin was negative 63 percent during the second quarter and that capital expenditures had increased 213 percent from a year ago to hit $413 million.

Overall, Facebook said its revenue from advertising totaled $992 million, representing 84 percent of total revenue and a 28 percent increase from the same quarter last year. It did not say what percentage was from mobile.

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

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  • Matt Hunter is the senior technology editor at CNBC.com.

  • Cadie Thompson is a tech reporter for the Enterprise Team for CNBC.com.

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.

  • Jon Fortt is an on-air editor. He covers the companies, start-ups, and trends that are driving innovation in the industry.

  • Lipton is CNBC's technology correspondent, working from CNBC's Silicon Valley bureau.

  • Mark is CNBC's Silicon Valley/San Francisco Bureau Chief covering technology and digital media.