Facebook Makes New Low in After Hours, But "Sponsored Stories" Make $1 Million a Day (Q2 Earnings) - Updated

FB after hours trading 7/26
(source: optionsxpress)
Facebook followed Zynga's crash yesterday. The stock was down 11% at $23.84 in after hours trading yesterday (broke through the June low last night), which is down 37% from its $38 IPO price. ZNGA lost 38% in after hours trading on 7/25.

Facebook reported a GAAP operating income loss of $743 million and GAAP net income loss of $157 million in Q2, which was mainly due to "share-based compensation" after its IPO.

"Costs and expenses — Second quarter costs and expenses were $1.93 billion, an increase of 295% from the second quarter of 2011, driven primarily by share-based compensation expense. As previously noted in the company's initial public offering prospectus, share-based compensation expense related to pre-2011 restricted stock units (RSUs) was not recognized in advance of the initial public offering, and as a result of the initial public offering during the second quarter, the company recognized $1.3 billion of share-based compensation and related payroll tax expenses. " (earnings release)

Facebook's total revenue hit $1.184 billion in Q2, up 32% from $895 million in Q2 2011. However, year-over-year revenue growth has been slowing every quarter for the past year. Using revenue data from Facebook's conference call slides (see slides in the videos below), I broke out y/y growth of 'total revenue', 'advertising revenue', and 'Payments and other fees' since Q2 2011. Back when Facebook filed its S-1 to register for its IPO, Bloomberg TV reported that Facebook's revenue per daily active user was trending down. So the warning signs were there. Based on the after hours print of $23.84 ($51 billion using 2.14B shares outstanding on Yahoo Finance), FB was trading at 11.8x sales ($51B/$4.32B revenue ttm). UPDATE: According to Henry Blodget at Business Insider, Yahoo Finance calculated Facebook's share count wrong. It was supposed to have 2.74B shares outstanding instead of 2.14B, so it is worth $65B and trading at 15x sales. It went public at 26x sales. LinkedIn is currently trading at 16.89x sales. Crazy ride these social media stocks are having.

Now listen to Facebook's CEO Mark Zuckerberg and Sheryl Sandberg explain their social ad strategy for Facebook. They said that "sponsored stories" in news feeds have been generating $1 million per day. Not bad. I think all publishers should be actively involved with their advertisers in some way. Blog posts are essentially my news feed. After that video I embedded Facebook's CFO talking about FB's key financial, advertising, and user metrics.

Facebook's Q2 2012 earnings call slides and earnings press release.

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