Facebook stock pops 8% as ad sales surge

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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.

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

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