Market Punishes Facebook For $1.18 Billion Q2 Revenue Report

Like its initial public offering, Facebook’s earnings didn’t live up to hype on cable business news channels. Facebook reported second-quarter earnings of 12 cents per share on revenue of $1.18 billion, even with a consensus estimate by Wall Street analysts of 12 cents per share and slightly above revenue estimates of $1.15 billion. 

The results were released after U.S. markets closed and followed weeks of speculation about whether the company would be able to overcome the doubt that has surrounded Facebook since its IPO.

Among the key points in the earnings release:

  • 543 million active mobile users, which showed rapid growth
  • Payments revenue of $192 million, flat with last year despite drops in Zynga
  • Monthly active users rose 29% from one year ago to 955 million.

It was Facebook’s first earnings release since going public in May and comes a day after Zynga reported disappointing earnings as a result of dipping revenues from Facebook. But Zynga's dip, which pulled down Facebook shares, stemmed more from changes to Facebook’s Timeline and Newsfeed, which reduced the site's emphasis on Zynga games.

The report does little to clear up Facebook’s long-term outlook as shares are trading more than 25% below the IPO price of $38. Shares of Facebook closed at $26.84 Thursday, down $2.50 or 8.5%, but quickly rose 5% in after-hours trading after the earnings report was released. Investors and observers remain split on whether Facebook has a viable business model, and whether or not it will be able to squeeze revenue out of its mobile applications as users increasingly use tablets and smartphones to access Web content.

Update: Investors hammered Facebook shares in after hours trading as they digested the earnings release. Minutes before Facebook's conference call was scheduled to start were $24.50, down 8.96%. At times, Facebook's shares have been down more than 10% in after-hours trading.

Before the release, much of the speculation centered on whether or not Zuckerberg would participate in a conference call to discuss the earnings which is scheduled for 5 pm ET. While some analysts said Zuckerberg’s presence was symbolically important for a company which has struggled since it went public on May 18, others said the focus on Zuckerberg took attention away from the bigger issues facing the social network.

“I think the bigger issue is the slowdown in growth in the U.S., which is their biggest market,” Josh Brown, founder and author of TheReformedBroker.com, told CNBC ahead of the earnings release. “That, and we need the clickthrough rate on mobile advertising - we need real numbers.”

But other pundits felt it was important for Zuckerberg to be on the call, even if he deferred most of the financial analysis to Chief Operating Officer Sheryl Sandberg.

“He should just ‘like’ the earnings numbers on his Facebook acct,” one critic tweeted.

Investors are also looking to the conference call to see if the company will offer forward-looking guidance. The company, which has tried to portray itself as not willing to succumb to Wall Street's whims, has been reluctant to give forward-looking estimates.

"We have long viewed as an Investment Positive the ability of companies to consistently execute against their guidance," Mark Mahaney, Citigroup’s analyst, wrote in a preview. "Says something about the visibility of the company’s business model and the management team’s understanding of its business.”

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