Facebook Shares Down After Hours on Weak 4Q Earnings

Benjamin Reeves   |  January 30 2013 10:29 EST

Facebook Inc. (NASDAQ: FB) stock took a pummeling in after hours trading Wednesday night following the company's somewhat lackluster earnings report for the fourth quarter.

While the company and some of its boosters in the media talked up the social networking site's massive mobile and revenue growth in the past year, actual earnings were soft, and the market reacted after hours. Facebook Inc. (NASDAQ: FB) shares fell 3.43 percent, $1.07, after hours to settle at $30.17. When Facebook debuted on the markets in May 2012 it listed at $38 per share in its IPO.

Although revenue at the company was up dramatically to $1.585 in the fourth quarter 2012 compared to $1.131 billion the same period the year before, that boost in revenue did not translate into higher earnings for the company. With generally accepted accounting principles (GAAP) taken into account, diluted earnings per share (EPS) fell to just $0.03 from $0.14 in the fourth quarter of 2011.

The company talked up its growth in mobile ad revenue in its earnings report, stating that mobile accounted for a whopping 23 percent of ad revenue in the fourth quarter of 2012, compared with just 14 percent in the third quarter.

Mobile has been a major growth area for Facebook. A year ago, it's mobile presence was in its infancy, and it now boasts 85 million mobile users in the U.S., it's largest mobile market, according to the New York Times. Yet the fair winds may bare Facebook onto shoals in the future. Though the company trumpets the fact that it now has 85 million mobile users, that segment which accounts for its fastest growing revenue stream only represents less than a tenth of its total user base of over 1 billion. Naturally, if Facebook can bring more users to mobile, it can continue to grow that revenue stream, but this strategy has its limitations due to the lower levels of smartphone ownership in emerging markets and the developing world.

Regardless of strengths or weaknesses in the company's mobile strategy, hiring and spending practices at Facebook will have to change if it is going to become converting revenue into profits and making investors bullish on its stock again. In the fourth quarter 2012 GAAP operating margins shrank to 33 percent from 48 percent for the same period in 2011.

Follow @ReevesBenjamin

(Photo courtesy of Wikimedia Commons, Maxo)