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Facebook's First Earning Report Is Respectable: $1.18 Billion Quarterly Revenue, 955 Million Total Users

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FACEBOOK FIRST EARNINGS
AP

NEW YORK (AP) — Facebook'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. The decline means Facebook's stock will most likely open 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."

What may have rattled investors is that Facebook's revenue growth has slowed. Between 2009 and 2010, the company's revenue nearly tripled. In the first quarter of this year, revenue climbed 44 percent. In the second quarter, Facebook Inc.'s revenue increased 32 percent to $1.18 billion from $895 million a year earlier. Analysts, on average had expected slightly lower revenue of $1.16 billion, according to FactSet.

For a freshly public company such as Facebook, the decelerating revenue growth is a concern. A bet on fast-growing revenue is the reason investors are willing to value new companies highly even if they are not making a profit. Another reason jittery investors may be even more nervous: Facebook didn't offer investors and financial analysts its outlook for the rest of the year.

Meanwhile, the number of people who access Facebook regularly inched closer to 1 billion. The company said it had 955 million active monthly users as of June 30, up 29 percent from a year earlier. At the end of the first quarter, it had 901 million users.

Overall the Menlo Park, California-based 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 company's adjusted earnings of $295 million, or 12 cents per share, matched Wall Street's expectations.

The results come two months after Facebook's stock flopped on its first trading day, on May 18. The day began with glitches with the Nasdaq stock market that delayed trading by half an hour. It didn't get much better from there. Despite months of hoopla that had investors thinking 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 another reason for the stock's decline.

"People are waiting for a really huge growth moment in revenue, advertising, dollars per user," said Alex Ashby, research analyst at Global X Funds, a provider of a social media exchange-traded fund. "People had expected that Facebook is going to revolutionize advertising...we think it's still a definite possibility, but maybe further down the road."

Investors were holding out hope 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 are growing at a faster pace than the number of ads on its mobile platform.

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

Even though the number of people who use mobile devices and tablet computers to access Facebook had been growing fast, Facebook didn't start showing ads on its mobile app until this spring. Facebook had 543 million active monthly mobile users at the end of the quarter, a 67 percent increase from a year earlier.

In a conference call with analysts, CEO Mark Zuckerberg said Facebook's mobile users are 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."

Facebook said its revenue from advertising totaled $992 million, a 28 percent increase from the same quarter last year. That number accounted for 84 percent of total revenue. The company did not say what portion was from mobile advertising. The rest came from payments and other fees, money Facebook makes from Zynga games and other apps.

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@ shibanijoshi : Even Facebook can't make an earnings call fun, unfortunately for us...

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Oh God, is Zuck wearing a hoodie?? Twitter is inconclusive... [sigh]

-- Dino Grandoni

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Instagram deal still hasn't closed yet. Zuck says no integration until that happens.

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This phone-or-no-phone question is interesting and all, but what I find interesting is that Zuckerberg actually answered a question on the call.

-- Mark Gongloff

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Zuck's denial of a Facebook Phone contradicts a rumor peddled by Bloomberg News JUST TODAY.

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Zuck says it wouldn't make sense to develop a Facebook phone. Take THAT, rumor mill.

-- Catharine Smith

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Forecasts are something Apple does but Google's doesn't do. So, at least there's precedent in tech for withholding predictions.

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Zuck says Facebook is the most-used app on any mobile platform. Too bad it is also one of the most unpleasant apps to use.

-- Catharine Smith

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According to Forbes, Zuck's net worth just dropped about billion.

Despite meeting analysts’ expectations and posting profits of .12 a share on .18 per share in revenue, Facebook was unable to appease the markets, which have been relatively bearish on social media companies this week. On Wednesday, social gaming company Zynga, which missed analysts’ estimates in its second quarter earnings call, watched as its stock fell more than 35% in after hours trading.

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Sheryl Sandberg congratulates Marissa Mayer for her new job at Yahoo.

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This partially explains the spike in "General & Administrative" spending during this past quarter.

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First analyst to say "Great quarter, guys" enters the Analyst Hall of Shame.

Nope, the first question is about monetization and expanded distribution agreements.

So, awesome, then.

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11 million businesses have Facebook pages, says Sandberg.

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Facebook's stock fell 8.5 percent during the regular session Thursday, then dropped further in extended trading after the company reported quarterly earnings for the first time as a public company.

More here.

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Sandberg says Sponsored Stories and News Feed are going to save Facebook, gives some details on return on ads.

Wahh, replies the stock price, now 11 percent down.

After 10 minutes, she hands the call off to the CFO David Ebersman.

-- Mark Gongloff

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Sandberg says Sponsored Stories (i.e. ads) rake in more than million a day, about half of that is from mobile users.

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Zuckerberg wraps up by talking about how Facebook just loves itself a good challenge, and it's going to spend lots of money to wrestle that challenge to the ground!

"We're working hard to staff up ... to make progress against these goals."

And with that, the stock, which had rallied a tiny bit on the sweet sound of Zuck's voice, is back down 10 percent.

Sheryl Sandberg has taken over the call now.

-- Mark Gongloff

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WSJ is reporting that Facebook had 955 million users in the second quarter. That's up from 739 million in the same time period last year.

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Zuck is talking about what a big opportunity mobile is for Facebook. He says mobile users are 20 percent more active than other users.

Now if they can just figure out how to make money on all that activity, they'll be all set.

-- Mark Gongloff

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That this is BREAKING NEWS says something about Facebook.

-- Mark Gongloff

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Look at the chart and spike in R&D spending (Facebook Phone?!), from AllThingsD.

facebook spending

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Facebook had 3,976 employees at the end of the first half, up 49 percent from a year ago.

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Via AllThingsD, here's the slide pack for Facebook's earnings. Enjoy its PowerPointy goodness if you wish, but it does not answer the burning question: Will Zuckerberg be on the call (T-10 minutes)?

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