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Facebook Shares Tumble As Earnings Barely Beat the Street’s Low Expectations

 Facebook Shares Tumble As Earnings Barely Beat the Streets Low Expectations

Now we see why he looked so glum.

While the world waits to hear Mark Zuckerberg’s do his best Kermit voice on Facebook’s first ever earnings call at 5pm EST today, the market has already spoken. Earlier today the signs were already there, Reuters reported that Facebook shares dropped 7 percent in premarket trading. (After its recent earnings “disaster,” Zynga’s shares opened 40 percent down today.)

However, Facebook’s second quarter earnings, just released online in advance of the call, actually exceeded Wall Street’s expectations. By a hair. As AllThingsD notes, consensus had been that Facebook would post profit of 12 cents a share on revenue of $1.15 billion. However, the company showed profit of 12 cents a share on revenue of $1.15 billion. Business Insider hyperbolically notes that expectations were already “horribly” low, with consensus predicting “utterly miserable,” decelerating ad revenue growth of 19 percent year-over-year. Another sign of Wall Street’s bearishness on the company.

The Wall Street Journal says shares rose just after the report. But were down in after-hours trading, plummeting 7.6 percent. When the markets closed today, Facebook shares were down 29 percent from its debut $38 IPO price in May. It is currently trading at $24.80.

There was, however, one bright spot. Ad revenue was better than expected. Citi predicted $922 million and Facebook reported $992 million. And it beat the expected 19 percent growth estimate, posting 28 percent growth, year-over-year

The company doesn’t offer any real explanation in its press release below, so we’ll have to stay tuned for the conference call.

Facebook Reports Second Quarter 2012 Results

MENLO PARK, Calif. – July 26, 2012 – Facebook, Inc. (NASDAQ: FB) today reported financial results for the second quarter, which ended June 30, 2012.

“Our goal is to help every person stay connected and every product they use be a great social experience,” said Mark Zuckerberg, Facebook founder and CEO. “That’s why we’re so focused on investing in our priorities of mobile, platform and social ads to help people have these experiences with their friends.”

Second Quarter 2012 Financial Summary

In millions, except percentages and per share amounts    Q2’12      Q2’11  
Revenue    $ 1,184       $ 895   
Income (Loss) from Operations      
GAAP    $ (743)       $ 407   
Non-GAAP    $ 515       $ 477   
Operating Margin      
GAAP      (63%)         45%   
Non-GAAP      43%         53%   
Net Income (Loss)      
GAAP    $ (157)       $ 240   
Non-GAAP    $ 295       $ 285   
Diluted Earnings (Loss) per Share (EPS)      
GAAP    $ (0.08)       $ 0.11   
Non-GAAP    $ 0.12       $ 0.12   

Second Quarter 2012 Operational Highlights

   

Monthly active users (MAUs) were 955 million as of June 30, 2012, an increase of 29% year-over-year.

   

Daily active users (DAUs) were 552 million on average for June 2012, an increase of 32% year-over-year.

   

Mobile MAUs were 543 million as of June 30, 2012, an increase of 67% year-over-year.


Recent Business Highlights

Product

   

Facebook launched several new mobile products, including:

   

a new Facebook Camera app for iPhone,

   

an improved version of the mobile messenger app for both iOS and Android, and

   

several updates to the Facebook Android app.

   

Launched global App Center where users can discover relevant apps for mobile and web.

   

Apple announced plans for a deep Facebook integration throughout the next version of Apple’s iOS and OSX.

Advertising

   

Expanded the rollout of Sponsored Stories in News Feed and enabled advertisers to buy Sponsored Stories in mobile News Feed.

   

Facebook now has independent ROI data from more than 60 advertising campaigns using a variety of third-party methodologies like panels and marketing mix models. The results show that 70% of campaigns resulted in a return on ad spend of 3x or better, and 49% of campaigns showed a return on ad spend of 5x or better.

Corporate

   

Announced proposed acquisition of Instagram, a popular photo-sharing app.

   

Entered into a definitive agreement with Yahoo! to settle all pending patent claims between the companies and deepen the companies’ current business partnership.

   

Began serving users from our new data center in Forest City, N.C.

   

Announced that Sheryl Sandberg, chief operating officer at Facebook, joined the company’s board of directors.

Second Quarter 2012 Financial Highlights

Revenue – Revenue for the second quarter totaled $1.18 billion, an increase of 32%, compared with $895 million in the second quarter of 2011.

   

Revenue from advertising was $992 million, representing 84% of total revenue and a 28% increase from the same quarter last year.

   

Payments and other fees revenue for the second quarter was $192 million.

Costs and expenses – Second quarter costs and expenses were $1.93 billion, an increase of 295% from the second quarter of 2011, driven primarily by share-based compensation expense.

 

2


As previously noted in the company’s initial public offering prospectus, share-based compensation expense related to pre-2011 restricted stock units (RSUs) was not recognized in advance of the initial public offering, and as a result of the initial public offering during the second quarter, the company recognized $1.3 billion of share-based compensation and related payroll tax expenses.

Income (loss) from operations – For the second quarter, GAAP loss from operations was $743 million, compared to income from operations of $407 million for the second quarter of 2011. Excluding share-based compensation and related payroll tax expenses, non-GAAP income from operations for the second quarter was $515 million, compared to $477 million for the second quarter of 2011.

Operating margin – GAAP operating margin was negative 63% for the second quarter of 2012, compared to 45% for the second quarter of 2011. Excluding share-based compensation and related payroll tax expenses, non-GAAP operating margin was 43% for the second quarter of 2012, compared to 53% for the second quarter of 2011.

Income tax provision – The GAAP income tax benefit for the second quarter was $608 million, representing a 79% effective tax rate. The company reported an income tax benefit as a result of the pre-tax loss in the second quarter. Excluding share-based compensation expense and related payroll tax expenses, the non-GAAP effective tax rate would have been approximately 40%.

Net income (loss) – GAAP net loss for the second quarter was $157 million, compared to net income of $240 million for the second quarter of 2011. GAAP EPS for second quarter of 2012 was $(0.08), largely reflecting the effect of the accounting treatment of pre-2011 RSUs, as previously noted in the company’s initial public offering prospectus. Excluding share-based compensation and related payroll tax expenses, non-GAAP net income was $295 million or $0.12 per share, compared to $285 million and $0.12 per share for the same quarter in the prior year.

Capital expenditures – Capital expenditures for the quarter were $413 million, a 213% year-over-year increase. Additionally, $52 million of equipment was procured or financed through capital leases during the second quarter of 2012.

Cash and marketable securities – Cash and marketable securities grew to $10.2 billion, which includes $6.8 billion in net proceeds from our initial public offering.

Webcast and Conference Call Information

Facebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET today. The live webcast can be accessed at the Facebook Investor Relations website at http://investor.fb.com/, along with the company’s earnings press release, financial tables and accompanying slide presentation.

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