Facebook Runs into Sequential Growth Issues in Payments

For the company’s fiscal third quarter, earnings came in at $0.12 EPS and $1.262 billion in revenue. Thomson Reuters had estimates of $0.11 EPS and $1.23 billion. We would note that revenue in the second quarter was $1.184 billion and its reported earnings per share came in at $0.12 EPS. The non-GAAP operating margin was 42% versus 51% a year ago.

Revenue from advertising rose 36% to $1.09 billion, representing 86% of total revenue. Excluding foreign exchange rates, advertising revenue would have increased by 43%. Payments and other fees revenue may be a problem here. This rose only by 13% from a year ago to $176 million. More important is that this was down by 9% sequentially from the second quarter. Facebook is a not a company that can afford sequential declines yet in any of its businesses.

Facebook also said that its third quarter costs and expenses were up 64% to $885 million, but this was a gain of 57% on a non-GAAP basis to $737 million if you back out options and other items. Facebook said that its monthly active users were 1.01 billion, up 26% from last year; daily active users rose 28% to 584 million, and Mobile monthly active users rose 61% to 604 million.

The company said that its cash and marketable securities were $10.5 billion at the end of the quarter. Mark Zuckerberg said:

As proud as I am that a billion people use Facebook each month, I’m also really happy that over 600 million people now share and connect on Facebook every month using mobile devices. People who use our mobile products are more engaged, and we believe we can increase engagement even further as we continue to introduce new products and improve our platform. At the same time, we are deeply integrating monetization into our product teams in order to build a stronger, more valuable company.

Facebook shares closed up 1% at $19.49 on the day and its post-IPO range has been $17.55 to $45.00. Shares initially dipped in the after-hours session but we now show a gain of 4% to $20.32 in the after-hours session.

UPDATE 5:26 PM EST: Shares are now up 9.3% at $21.30.

JON C. OGG