Facebook’s first earnings report meets Wall Street estimates

After Facebook’s disappointing IPO and rocky past few months, investors in the newly-public social network can breathe easy – but just barely.

The company’s second quarter earnings report Thursday — its first since going public in May — just squeaked in at analysts’ expectations.

The company said revenue for the quarter was $1.18 billion, which was an increase of 32 percent over the same period last year. The average estimate from Wall Street analysts was $1.15 billion. Facebook also reported non-GAAP earnings of $295 million, or $0.12 per share, which was what analysts projected. As was expected, the company reported a GAAP net loss for the quarter of $157 million, compared to income of $240 million in the second quarter of 2011. But the loss was due to one-time stock-expense charges related to its IPO.

The company’s second quarter revenue also marked an increase over its revenue from the first quarter of the year, which was $1.06 billion.

As for advertising revenue, the company said it earned $992 million, which represented 84 percent of the total revenue and a 28 percent increase from the same quarter last year.

As of the end of June, Facebook said it had 955 million monthly active users, which is an increase of 32 percent year-over-year, and 543 million monthly active mobile users, which marks an increase of 67 percent over the same period a year ago. Although the company provided the number of monthly users it declined to break out mobile ad revenue, which is a particularly important area as more of its users migrate to mobile platforms.

On the call with analysts, CEO Mark Zuckerberg kicked things off with a breakdown of the company’s user numbers (mentioned above) and the company’s priorities for the year. Those include building out mobile products, scaling up sponsored stories and adding more partners to Facebook’s platform.

Mobile first, second, and third

A key theme throughout the call was the company’s focus on mobile, which, as we’ve mentioned earlier, is a critical area for the company. Zuckerberg told analysts that mobile users are more active than desktop users and that the company plans to improve its mobile presence.

“Facebook is the most used app on basically every mobile platform. When we think about what we want to do right now, we want to increase the depth of the experience in addition to just growing users,” he said. “There’s a big opportunity for us here.”

Interestingly, when Zuckerberg was asked about how he sees Facebook playing in the mobile space, he blew off the frequently-circulated notion that Facebook would create its own device.

“Building out a whole phone… wouldn’t really make much sense for us to do,” he said. Of course, Facebook is more likely to partner with an actual phone builder — said to be HTC — if it does actually release its own branded phone.

Tell us a story

Another topic that occupied lots of ton of time on the call was the cornerstone of Facebook’s advertising strategy – the sponsored story.

“Marketing on Facebook is fundamentally different than other mediums because messages can be shared from friend to friend,” said COO Sheryl Sandberg. “This is word-of-mouth marketing at unprecedented scale.”

In the last quarter, Sandberg told analysts, the company has focused on rolling out new products, demonstrating the ROI from those products to marketers and making it easier for advertisers to use the platform. By the end of June, she said, the sponsored story was generating about $1 million a day, with about half of that coming from mobile.

The company also highlighted recent independent data showing ROI from more than 60 advertising campaigns. According to the data, 70 percent of campaigns led to a return on ad spend of 3x or better and 49 percent showed a return of 5x or better.

Although the early indications are encouraging and clients have expressed “strong interest” in them, Sandberg, Zuckerberg and CFO Dave Ebersman nearly fell over themselves assuring analysts that they were rolling out the product cautiously, so as not to degrade the user experience.

“The biggest mistake” the company could make, Ebersman said, is to move too quickly with sponsored stories in the newsfeed and find themselves in a position that they didn’t anticipate or is difficult to manage.

In addition to targeting top global brands, Sandberg the company is focused on capturing business from the less tech-savvy small- to medium-sized businesses — the “holy grail” of Internet marketing. Although they might not even have a website yet, she said their familiarity with Facebook as personal tool put Facebook at an advantage over competitors. (Going forward, this should be an interesting area to watch as Google is increasing efforts with local businesses.)

In a nod to Facebook’s dismal debut as a public company, Ebersman said, “We’re disappointed about how the stock has traded, but the important thing for us is to focus on the fact that we’re the same company now as we were before… We want to be judged on the quality of the experiences we build and the value we can create over the longterm.”

Facebook’s stock had been down about 8.5 percent before the market closed; in after hours trading, the stock traded down further to below $24.