Facebook earnings match estimates; 955 million users

Last updated: 3:05 PM PT

Facebook posted second-quarter earnings in line with Wall Street's expectations -- and so far that's not good enough.

In its first earnings report since going public in late May, Facebook posted a net loss of $157 million, or 8 cents a share, compared with net income of $240 million, or 11 cents a share, in the year-earlier period. Revenue came in at $1.2 billion, up from 32 percent a year ago.

On an adjusted basis, Facebook made 12 cents a share. While that was in line with what Wall Street had been looking for, the stock was hammered in early after-hours trading, falling nearly 10 percent as of 2:15 PM PT.

"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 the earning press release. "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."

Facebook continues to grow its user base and average revenue per user (ARPU). However, outside the U.S., where most of the user growth is happening, the ARPU is far less than in North America (see the charts below).

Facebook CFO David Ebersman said that ad impressions are down overall, owing to more users accessing Facebook on mobile devices. Payments revenue has been flat, he said, mostly because of the shift to mobile by social gamers, where payments for virtual items are not used.

"Investing is a priority, rather than managing to a margin," Ebersman said. Facebook has $10.2 billion in cash and marketable securities on its balance sheet.

During the earnings conference call, Zuckerberg emphasized mobile as key to Facebook's future growth. "Mobile users are 20 percent more likely to use Facebook on any given day," he said, adding that sponsored stories (ads) in mobile news feeds are doing well.

Sponsored stories in Facebook's News Feed are generating more than $1 million per day, with half the revenue from mobile, COO Sheryl Sandberg said during the call. Fewer than half the ads on Facebook are social today, she said, and as the percentage of social ads increases so will Facebook's user engagement and revenue per ad.

Sandberg also views local businesses as a growth opportunity for the company. "Local is the holy grail of the Internet, but local businesses are not very tech savvy. More than 40 percent have no Web presence at all. Facebook has a huge competitive advantage because they are using Facebook personally, and seeing messages from other businesses," she said. "It's a smaller leap (to use Facebook), and the numbers bear that out -- 7 million small businesses are using Facebook Pages on a monthly basis, and hundreds of thousands are upsold to become advertisers."

Answering a question concerning a Facebook phone, Zuckerberg said building a phone "wouldn't make much sense for us."

Michael Matousek, a senior trader at U.S. Global Investors, told Reuters that the "big question with the stock is how it will monetize its billion or so users. A lot of people think they can't convert those users to money."

Mark S. Mahaney, managing director of Internet Research at Citigroup Investment Research, said he doesn't view Facebook's Q2 results as "dramatically good or bad," and maintains a price target of $35. He cited Facebook mobile monetization and user engagement as keys to Facebook's future.

Here are some key details from the report:

• Monthly active users (MAUs) were 955 million as of June 30, 2012, an increase of 29 percent year-over-year.
• Daily active users (DAUs) were 552 million on average for June 2012, an increase of 32 percent year-over-year.
• Mobile MAUs were 543 million as of June 30, 2012, an increase of 67 percent year-over-year.
• Revenue from advertising was $992 million, representing 84 percent of total revenue and a 28 percent increase from the same quarter last year.
• Payments and other fees revenue for the second quarter was $192 million.

This earnings report comes just more than two months after Facebook's IPO, which easily became the largest Internet IPO in history when Facebook raised $16 billion. It also became one of the messiest. The stock, which many had hoped would return Wall Street to the go-go days of the '90s dot-com boom, went public at $38 dollars a share and quickly started to fall.