Facebook Modestly Beats Wall Street's Low Expectations, Stock Tanks Anyway

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Photo: kohtzy | Flickr

Facebook just reported its second quarter earnings.The company modestly beat Wall Street’s expectations, which were unnaturally low, having been spoon-fed by the company during its Q2 IPO process.

“These earnings are meh,” one equities analyst just told us over IM.

Click here to see Facebook’s second quarter in charts >

The stock is down more than 9% in after-hours trading. It’s trading below $25 for the first time.

Ad revenues were up 28% year-over-year on a quarterly basis.

That beats Wall Street’s gimme estimates of 19%, but it’s more worrisome revenue deceleration from a company that has a revenue multiple of 15X.

By comparison, Google’s business grew 21% from a much larger base (~$40 billion annual revenues) during the second quarter. Its revenue multiple is only 5X.

Given the ongoing deceleration of Facebook’s growth rate, it is laughable that people were recently saying that Facebook would quickly become bigger than Google. If it ever does become that big, it won’t be because of its current ads business, that’s for sure.

Facebook’s profits are basically flat year-over-year because its operating profit margin has decreased. That’s not good news for the stock (this was supposed to be a growth story). The margin is down because Facebook is investing, which is smart, but it’s hurting the company’s profitability.

Here’s a link to the earnings press release.

THE NUMBERS:

  • Revenue of $1.18 billion vs. $1.147 billion consensus. 
  • Non-GAAP EPS of $0.12 vs. $0.12 consensus.
  • Advertising revenues were $992 million versus a $921 million consensus.
  • Active users are 955 million. Daily use is 552 million.
  • 543 million mobile users.

Facebook hel a conference call to go through earnings at 5PM EST today. We took notes.

Here are the highlights:

  • Zuckerberg says Facebook doesn’t need to build its own phone.
  • Facebook says it didn’t ramp up its most promising new ad unit, Sponsored Stories, until June.
  • Facebook said Sponsored Stories revenue was $1 million per day, half coming from mobile.
  • Facebook refused to forecast 2H revenues because it is rolling out Sponsored Stories cautiously.
  • Zuckerberg said Facebook will continue to buy companies for talent, and that Instagram was an exception.
  • Sandberg said advertisers get 3X or 5X ROI on Facebook ads.
  • Zuckerberg said that for now, Facebook’s plan is to build out a platform and allow other companies to connect users. That might change in the future, he said.
  • Sandberg said Fab.com is a good example of how commerce can be done on the Facebook platform, with 20% to 40% of traffic coming from Facebook.

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