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Markets Don't Like First Facebook Earnings

In a widely anticipated event that marked Facebook's first
earnings report since its IPO, the social media company reported higher total
revenues and higher advertising revenues than expected. But non-GAAP earnings
per share (EPS) only met the $0.12 EPS that analysts have expected and its
shares slumped in after-market trading as traders worried about a slowdown in
its growth curve.

By 6 p.m. ET, the stock had fallen 10.6% in afterhours
trading and was down 8.5% for the day to around $24, way below the $38 IPO

In the earnings call, Mark Zuckerberg, founder and CEO,
addressed those concerns by stressing that the company was working to increase
its revenue opportunities. He pointed directly to new products in mobile and
its work to make Facebook ads more social as examples of how the company
planned to continue to grow.

Overall revenue climbed 32% from a year earlier to $1.18
billion in the second quarter of 2012, with a 28% bounce in advertising to $992
million. Non-GAAP net income, which excluded share-based compensation, came in
at $295 million, the same as a year earlier, or about $0.12 a share. But it
took a $157 million loss for the quarter, mainly due to the costs of
share-based compensation, a major shift from the $240 million profit in the
second quarter of 2011.

The company also reported increased usage, with monthly
active users (MAUs) hitting 955 million as of June 30, 2012, an increase of 29%
in the last year and daily active users (DAUs) were 552 million on average for
June 2012, an increase of 32%.

Mobile MAUs were 543 million as of June 30, 2012, a 67%
year-over-year bounce from 325 million in the second quarter of 2011. The
mobile numbers are particularly important because users are increasingly
shifting their time to mobile devices.

In the run-up to the report, the market had been jittery
about the results. Facebook's stock had not traded above $28 since its IPO and
it fell on early trading on Thursday, July 26, after Zynga reported
disappointing results, with lower than expected revenues and earnings per
share, which it blamed on declining interest in Facebook games. Zynga also
slashed its 2012 financial targets.

Zynga shares have lost nearly 70% of their IPO price from
December. Zynga's prospects are important because Facebook gets over 10% of its
revenue from the company.

The AP reported that "on average, analysts are expecting
Facebook to post earnings of 12 cents per share on revenue of $1.16 billion,
according to a poll by FactSet," which indicates that Facebook beat both the
revenue consensus and met the EPS consensus.

In the mobile area, Zuckerberg and Facebook COO Sheryl
Sandberg pointed to their new Sponsored Stories product for news feeds in the
mobile space. That product, Sandberg said was already producing a run rate of
about $1 million a day even though they only began aggressively pushing it in

Directly addressing market concerns that Facebook needs to
tap into the consumer shift to mobile usage, Zuckerberg noted that in addition
to new products like Sponsored Stories, Facebook was the most popular app in
the mobile space and they wanted to work closer with app developers so that
Facebook would be more closely integrated into mobile.

He shot down, however, speculation that it might follow in
Google's or Apple's steps by launching its own phone. "Building out the whole phone...wouldn't
make sense for us," currently, he said.

Sandberg also highlighted their efforts to demonstrate very
high returns on investments in Facebook ads and their work to make it much
easier for advertisers, particularly small businesses, to advertise.