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Friday, 01/11/2013 4:01:28 PM

Friday, January 11, 2013 4:01:28 PM

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FB earnings redux from last oct was all about the mobile

Facebook (FB) Earnings Report: Zuckerberg Thumbs His Nose at These Experts (YHOO, GOOG & ZNGA)

A recap of what the”experts” said about the Facebook’s (NASDAQ: FB) earnings report before it what announced.

Facebook Inc (NASDAQ: FB) reported earnings after the market closed yesterday and to the surprise of nearly everyone (including myself), it seems to be doing better than what all of us so-called experts have expected – especially in the mobile advertising space where Yahoo! Inc (NASDAQ: YHOO) and Google Inc (NASDAQ: GOOG) are facing challenges but as I wrote yesterday (See: Facebook’s (FB) Biggest Problem? I Just Don’t Use It That Much (YHOO, GOOG & ZNGA)), there are still reasons not to hit the “like” button on its stock.

To quickly recap what was in the Facebook Inc earnings report, it reported a 32% sales rise to $1.26 billion (the growth rate matched that of the second quarter and snapped a streak of slowing sales rate increases) while advertising revenue rose 36% to $1.09 billion (verses 28% growth in the second quarter) and revenue from payments and other businesses rose 13% to $176 million. More importantly, mobile ad revenues totaled roughly $150 million – much better than the estimated $40 million to $50 million for the second quarter and almost nothing for the first. In fact, Mark Zuckerberg said during the conference call that the mobile opportunity was "the most misunderstood" aspect of Facebook's business and that the company may end up making more money from mobile ads than from PC ones.

With that in mind, what were the so-called Wall Street experts saying before Facebook reported earnings? Here is a quick recap of what to help you decide who to listen to moving forward:
•Sterne Agee & Leach analyst Arvind Bhatia had predicted that only 5% of Facebook’s advertising sales would come from mobile. He was later quoted as saying that Facebook has a “long way to go to prove that this is sustainable” but he also noted just how quickly things can move.
•Wedge Partners’s Martin Pyykkonen had gone on CNBC to say that he expected earnings to clock in above consensus because of mobile. He also pointed out that you can get higher rates on a tablet that are closer to the levels achieved on a desktop.
•Citi’s Mark Mahaney was expecting revenue growth to fall to 23% with revenue somewhere in the range of $986 million.
•Michael Pachter with Wedbush Securities wasn’t optimistic because in the view of his firm, recent Zynga (NASDAQ: ZNGA) releases hurt monetization of previously “evergreen” franchises as users end up spending more time on new games but less of their money. Hence, he assumed a drop in Zynga game spending would hit Facebook’s bottom line with some potential for payments gains from other game vendors.
•JP Morgan Chase analyst Doug Anmuth had stated that they remain bullish on Facebook and believe advertising revenue can re-accelerate.
•Pacific Crest analyst Evan Wilson had written a research note on Monday to say that they were not concerned about headline numbers and that he expected revenue growth to accelerate. He also gave Facebook a $19 price target.
•Barron's Associate Editor Andrew Bary appeared in a Barron’s video to say that investors should stay away from Facebook's stock because the transition to mobile and a generational shift in users has impacted its advertising revenue.

I should note that Facebook had said it crossed the 1 billion threshold for monthly active users by the end of last month and that 604 million of them were mobile users. On the other hand and as I noted yesterday, I don’t spend anywhere near as much time on Facebook as I do on Yahoo! and on Google to a lesser extent as their sites are more useful (e.g. email, search, news, weather reports etc.). Hence, I have to wonder if Facebook is not a mile wide but only an inch deep. On the other hand and even if most of the 1 billion Facebook users are like me and spend less than 30 minutes a month on their accounts, that’s still a great platform to add other and more sticky services to besides newsfeeds about friends and games but I am still not going out a hitting the “like” button on Facebook (FB) stock.