Facebook Q4 fails to impress investors; shares drop

Did the stock price get ahead of itself, or was Facebook's mobile revenue too low?

Despite posting better-than-expected numbers in its quarterly earnings report Wednesday, shares of Facebook fell nearly 3% in early trading Thursday.

Shares were down 85 cents to $30.39, as the good news had already been priced into the stock.  

Recall that Facebook's stock saw a dramatic turnaround beginning in mid-November. The last day that Facebook ended trading below $20 was November 13. But Facebook's shares have been trading around $30 ever since closing above that price on January 9, for the first time since closing above $30 in July.

Additionally, some investors expected Facebook to deliver better mobile numbers.

Mobile MAUs (monthly active users) were 680 million, an increase of 57% year-to-year. Mobile DAUs (daily active users) exceeded Web DAUs for the first time in the fourth quarter of 2012. Mobile revenue was $306 million for the quarter, representing approximately 23% of total advertising revenue, up from approximately 14% of advertising revenue in the third quarter of 2012.

J.P. Morgan analyst Doug Anmuth expressed surprise that the social network's mobile ad revenue was not even higher, and said that Facebook was being more cautious in its approach to advertising than he expected.

"Given that Facebook exited 3Q at a quarterly Mobile run-rate ($3M/day), we were surprised to see Mobile ad revenue at $306M for the quarter, an average of $3.3M/day. We believe marketer demand for Facebook’s Mobile News Feed ads continues to increase, but Facebook is likely gating inventory more than we had anticipated. We believe the company wants to see ongoing improvements in ad quality in order to increase ad load," he wrote.

Anmuth maintained his Facebook price target at $35.

Andreas Pouros, COO at London-based digital marketing agency Greenlight also said that the numbers were lower than expected, and reiterated the same point as Anmuth, blaming Facebook for being too timid in its approach to advertising.

“Key to the demise of historical market leaders, such as Altavista in Search and MySpace in Social, was too much advertising”, Pouros says. “It served to increase revenue in the short term but undermined utility and loyalty."

"Maybe this is why Facebook’s mobile revenue numbers were lower than the market expected, with Facebook perhaps understanding this risk and not being as aggressive as it could have been with pushing ads to the masses. Doing so would have spiked short term revenue but at a potential long term risk.”

But not all analysts are convinced that Facebook came up short this quarter, including Sterne Agee analyst Arvind Bhatia, who actually says that analyst expectations for mobile revenue were too high. 

The "whisper" numbers, or the numbers that get floated around but that aren't published, were expecting mobile revenue to be in the area of around $350 million. This is a number that Bhatia says "were unreasonably high." His estimate was for $275 million in mobile ad revenue, so Facebook easily beat his expectations.

Bhatia is maintaining his Facebook price target at $37.

Eden Zoller, principal analyst at Ovum, was also positive about Facebook's mobile performance during the quarter.

"Facebook Q4 2012 results give cause for optimism and suggest the company is on the right track following its disappointing IPO and the lacklustre two quarters that immediately followed.  What stands out from Facebook’s Q4 results is the centrality of mobile for its service strategy and growth. Revenues from mobile advertising accounted for 23% of total advertising revenues compared to 14% in the previous quarter, with sponsored stories in the mobile news feed and app install ads proving effective.  Wal-Mart alone delivered 50 million mobile ads to customers. This solid progress on the mobile advertising front should be applauded as a key challenge for Facebook has been how to monetize its growing mobile user base, particularly as an increasing number interact with the platform by only via mobile devices," Zoller says.

Facebook's fourth quarter earnings

Facebook posted revenue of $1.585 billion for the quarter, better than Wall Street's estimates of $1.52 billion. Adjusted earnings per share came in at 17 cents in the fourth quarter, compared with the 15 cents a share that analysts were expecting.

But as we mentioned in our preview piece Tuesday, investors had most likely priced in all of the good news into the stock. Shares are down 2% to $30.51 in after-hours, after rising about 1.5% during the day, a modest uptick after after falling 5% in Tuesday trading. Shares, however, are still well above the $20 range they traded at in November. 

The social network saw its monthly active users increase by 25% year to year to 1.06 billion, and saw its daily active users increase 28% from the previous year to 618 million.

Mobile MAUs were 680 million as of the end, an increase of 57% year-to-year. Mobile DAUs exceeded web DAUs for the first time in the fourth quarter of 2012.

"In 2012, we connected over a billion people and became a mobile company," said Mark Zuckerberg, Facebook founder and CEO said in a statement.  "We enter 2013 with good momentum and will continue to invest to achieve our mission and become a stronger, more valuable company."

Revenue

Facebook’s quarterly revenue was up 40% year to year, from $$1.13 billion to $1.585 billion. Full year revenue increased from $3.711 billion in 2011 to $5.089 billion in 2012.

Mobile revenue represented approximately 23% of advertising revenue for the fourth quarter of 2012, up from approximately 14% of advertising revenue in the third quarter of 2012.

Advertising revenue was $1.33 billion, or 84% of total revenue. It increased 41% from the same quarter in 2011. 

Revenue from payments and fees took in  $256 million.

Net income

GAAP income was $64 million, compared to $302 million for the same quarter in 2011.

Non-GAAP net income was $426 million or $0.17 per share, compared to $360 million and $0.15 per share for the same quarter in the prior year.

(Image source: https://www.washingtonpost.com)