Facebook pleased Wall Street on Tuesday when it reported thirdquarter financial results that beat expectations. Even though the company reported a net loss of $59 million in the quarter, compared with net income of $227 million a year ago, the stock rose in after-hours trading by as much as 10%.
Revenue grew 32% to $1.26 billion, slightly surpassing analysts' forecasts. They had expected revenue to rise by 29% from a year earlier to $1.23 billion, according to a survey by Bloomberg.
That consensus had already accounted for slowing growth. Revenue grew by 32% year-over-year in the second quarter of 2012 and 45% in the first quarter; in the third quarter of 2011, revenues had doubled. Analysts had also expected 11 cents a share of net income, using the nonstandard accounting methods they prefer, but Facebook beat those estimates by a penny.
The company also said income from operations was $377 million, compared with $414 million for the third quarter of 2011. And it said 14% of its revenue came from mobile advertising - relevant to the critical question of how it will respond to the world's shift to mobile computing.
A Citibank analyst, Mark Mahaney, compared Facebook's predicament with a plane that hits an air pocket, as it faces a host of challenges. For one, like many tech companies , it needs to deal with onset of mobile computing, as 60% of its users log on from their cell phones.
The company only recently started showing ads on users' mobile news feeds and has not yet detailed how much it makes this way. Also, a vast majority of Facebook's users are overseas, where ad rates can be far lower than in the United States. And its social games partner, Zynga, has fared poorly on Wall Street.
Besides, employees and other insiders will become eligible to sell off a tranche of shares in the coming months, potentially flooding the market with shares.
Facebook still has a unique opportunity to profit, analysts say. That depends not just on selling ads on the Facebook platform, but also allowing marketers to target Facebook users far and beyond, from when they are surfing the Web to playing games to, crucially , when they are using their smartphones and tablets.
It remains unclear how consumers will react to that kind of ubiquitous tracking , not to mention whether regulators will allow it in the multitude of countries in which Facebook operates.
Facebook made its public debut on May 18 with a valuation of over $100 billion, or more than 100 times its annual earnings at the time. At that price, it was more expensive than 99% of all Standard & Poor's 500 Index companies, Bloomberg calculated. Since then, despite having shed more than 40% of its value, Facebook remains among the costliest, certainly in the technology sector.
Its price-toearnings ratio is over 67. Facebook shares have hovered around $20 for several weeks, barely budging even when the company announced in early October that it had drawn a record 1 billion regular users worldwide.
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