FB Earnings: Facebook Beats Sales Estimates, But Share Slide Continues

July 26, 2012— -- Facebook (Nasdaq: FB), after its disastrous initial share offer in May, issued its first earnings report as a public company today, barely topping analyst expectations for sales at $1.184 billion and meeting profit estimates. But the share sell-off continued as investors worried about slowing growth.

"Our goal is to help every person stay connected and every product they use be a great social experience," Mark Zuckerberg, Facebook founder and CEO, said in a statement. "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."

The company's shares closed Thursday at $26.84, down 8.5 percent and some 26 percent below its offer price back in May. They briefly surged today in aftermarket trading to more than $29 then dropped again, to an all-time low of $25.50.

Facebook said profit was 12 cents a share after certain costs including a large payout to insiders from its IPO.

Arvind Bhatia, Sterne Agee's managing director of equity research, said Facebook's earnings were as expected.

"Second quarter results were in line and we are encouraged by the strength in advertising," Bhatia said.

Bhatia expected Zynga's "disappointing trends," as revealed through the social gaming's earnings on Thursday, to have a short-term negative impact on Facebook.

During Facebook's earnings conference call, which will include comments from Zuckerberg, investors will focus on how much the social network made in advertising revenue and whether users are sticking despite cutthroat competition from sites like Twitter and Pinterest.

After Facebook went public and shares of the company slid, Zuckerberg's net worth sunk about $5 billion from a peak of about $19 billion.

The company reported 955 million monthly active users as of June 30, an increase of 29 percent, year-over-year.

At the end of March 2012, there were 901 million monthly active Facebook users with 526 million daily active users on average.

Before the highly publicized and blundered IPO on May 18, Facebook revealed it made $1.058 billion in revenue for the first quarter of 2012, up from $731 billion last year. Its net income had dropped to $205 million from $233 million last year.

Aaron Kessler, an analyst with investment firm Raymond James, estimates second-quarter revenue of $1.11 billion, slightly below consensus of $1.16 billion. Kessler estimates about 561 million daily active users in the second quarter, which would indicate growth of 35 percent year-over-year.

Overall, analysts expect revenue to expand 9 percent to $1.15 billion and earnings per share to be 12 cents.

Kessler will be most interested in hearing what Facebook has to say about its advertising and mobile monetization strategy, a previous soft spot when the company announced its plans to go public, and engagement metrics.

ComScore traffic data indicates a slowdown in the quarter. Second-quarter unique visitors from the U.S. increased only 1 percent year over year, as opposed to 5 percent year over year in the first quarter. Average daily visitors to Facebook declined 2 percent in the second quarter compared with the previous year.

User engagement "may be facing headwinds" over the next 12 months, according to a recent Raymond James poll. Their survey of 362 Facebook users indicated that 19 percent expect to decrease their usage of Facebook over the next year, the highest percentage of the 10 leading Internet sites polled, according to a note to investors on Wednesday.

Only 12 percent of users expect to increase their Facebook usage over the next 12 months, the lowest percentage of the 10 sites polled.

Last month, Facebook announced a new service called Facebook Exchange that allows advertisers to obtain information about users' browsing history and bid in real-time for relevant ads.

Rick Summer, analyst for investment and fund rating company Morningstar, said the service "signals the most consistent trend that we expect for Facebook's future."

"The company will need to continue investing in deep technology solutions to maximize the value of its user base to advertisers," Summer wrote in a note to investors last month.