Following Facebook's fumbled initial public offering in May, Wall Street's expectations for the social network's first quarterly earnings report weren't all that demanding, so Facebook and its investors breathed a sigh of relief July 26 when it released its first public numbers.
That was because the Menlo Park, Calif.-based social network brought in revenue of $1.18 billion that exceeded a consensus $1.147 billion from analysts. Earnings were equal with estimates at 12 cents per share.
While it outperformed expectations on revenue, Facebook also reported a year-over-year non-GAAP (generally accepted accounting practices) net loss of $157 million, which included $465 million in property buying and leasing expenses.
Investors generally weren't as impressed as stock analysts. After the close of the bell, Facebook's stock price dropped to a low of under $24 per share--slippage of about 10 percent on the day. The stock closed at $26.84.
Eighty-four percent of Facebook's income, or $992 million--up 28 percent year-over-year--is derived from advertising, mostly premium-placed local ads on individual user's status pages. Analysts projected $921 million.
Facebook reported that its number of active users is now 955 million--up 29 percent year-over-year--with daily use by 552 million people. The company also reported that 543 million users are deploying its mobile applications.
Mobile Reach a Concern, But Company Says It's Working on It
The company also reported that its capital expense costs rose 213 percent over 2011 as it builds out its home-owned IT network with new data centers and increased custom software development.
"I think the biggest problem for them (Facebook) right now is that so many people are moving so quickly from their desktop to their phone, and that's creating a certain amount of chaos," Bloomberg News analyst Jon Erlichman said. "We saw that in Zynga's (earnings) results last night, and we're seeing it in the Facebook story, too. Year-over-year, their (Facebook's) advertising growth was 28 percent, and a year ago, that same number was something like 83 percent.
"You wonder if advertisers that have put a lot of money on Facebook in the past are now waiting for the next big step, or to see what Facebook can generate. Either way, these advertisers have to watch the numbers of people using their phones and not sitting comfortably at their desks anymore."
Chief Operating Officer Sheryl Sandberg said on the conference call that development of Facebook's monetization engine is one of the three most important projects under way inside Facebook. The other two are the overall development of applications for mobile devices and of a new online bidding application.
"Through 2012 and beyond, we will continue to invest greatly in these initiatives," Sandberg said.
Partner Zynga in Stock Tailspin
Online game provider Zynga, which went public in December 2011, on July 24 saw its stock tailspin 38 percent from about $5 to $3.17 a share at market close due to a subpar earnings report. Zynga derives virtually all of its business from running its games, which include Farmville and numerous others, on Facebook's network.