How to help: Northern California wildfire relief

Facebook stock pops 8% as ad sales surge

This is an archived article and the information in the article may be outdated. Please look at the time stamp on the story to see when it was last updated.

FILE: Mark Zuckerberg, CEO of Facebook, at a news conference in July 2011.

By Julianne Pepitone

NEW YORK (CNNMoney) — Facebook’s second earnings report as a public company came in just above Wall Street estimates, but that was enough for investors to give shares a nice boost.

The social network reported sales of nearly $1.3 billion for its third quarter, up 24% from the same period last year.

Facebook’s shares fell 3% just after the announcement, but quickly turned around to rise more than 8% in after-hours trading. Facebook needs every stock boost it can get: Its shares had lost half their value since the company’s May IPO.

Facebook’s earnings for the quarter were complicated by a hefty tax bill related to the company’s equity compensation for employees. The company’s took a $431 million income tax provision for the quarter, representing an eye-popping 116% effective tax rate.

The tax bill pushed Facebook to a net loss of $59 million, compared with a gain of $227 million in the year-ago quarter. Stripping out the tax bill and other equity compensation expenses, Facebook had net earnings of $311 million, slightly ahead of analysts’ expectations.

Highlights for the quarter that ended Sept. 30 included a 26% yearly gain in monthly active users, who now number just over 1 billion. Facebook pulled in $1.1 billion serving ads to those users — up 36% from last year.

Facebook called out a few of its its efforts to monetize its everyday users. In September it unveiled Facebook Gifts, a feature that lets users send friends real, physical goods.

In October — which isn’t part of the quarter Facebook is currently reporting — it released a “Promote” feature to a small group of U.S. users. The experimental program lets Facebookers pay a fee, currently around $7, to promote important pictures or announcements.

A central element of the monetization problem is Facebook’s sluggish transition to a mobile-dominated society. The site wasn’t built with mobile in mind, and the company was slow to develop device-optimized apps. An overhauled iOS app launched in August — but Facebook still isn’t showing mobile users as many ads as it would if accessed on a desktop.

That’s a missed revenue opportunity. Facebook revealed Tuesday that its mobile customer base rose 61% from last year, to 604 million active users.

Also of concern in Tuesday’s report: It’s getting more expensive for Facebook to do business. Excluding some compensation expenses, Facebook’s operating margin shrank to 42%, down from from 51% a year ago.

Facebook will hold a conference call Tuesday afternoon, during which analysts are likely to ask probing questions about Zynga, the game maker that accounts for a significant portion of Facebook’s sales.

Earlier this month, Zynga scaled back its outlook for 2012, citing a bunch of problems including “reduced expectations” for certain games and delays in launching new titles.

Problems for Zynga means problems for Facebook. Zynga accounted for 14% of Facebook’s revenue in the first six months of 2012, including payment processing fees, direct advertising, and outside ads shown on pages generated by Zynga apps.

The-CNN-Wire
™ & © 2012 Cable News Network, Inc., a Time Warner Company. All rights reserved.