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John Burfisher/MEDILL

Facebook Inc. released its earnings late Tuesday. The company's stock soared nearly 20 percent Wednesday.

Facebook reports loss but investors are upbeat

by John Burfisher
Oct 24, 2012

Despite millions of new users, Facebook Inc. lost money in its most recent quarter even as revenue for the social media giant rose significantly. Despite the loss, the company's shares soared almost 20 percent.

The Palo Alto, Calif.-based social media company lost $59 million, or 2 cents per diluted share, a swing from profit of $227 million, or 10 cents per diluted share, in the same period a year ago.

Wall Street analysts surveyed by Bloomberg had been expecting Facebook to lose 5 cents per diluted share.

Facebook’s expenses almost doubled and it paid a lot more in federal taxes.

Revenue rose 24 percent to $1.26 billion from $954 million last year.

A growing number of consumers are using their mobile devices to access Facebook—as high as 60 percent, according to one estimate.

Michael Pachter, an analyst from Wedbush Securities Inc, says that means Facebook can “increase the number of opportunities on advertising.” Mobile advertising generated only 14 percent of overall advertising revenue last quarter.

A large number of mobile users of Facebook are coming from foreign countries.

“Emerging economies have lower Internet penetration rates than cell phones,” Pachter said. On some continents including Africa and South America, people rely on their phones for access to the Internet.

Smartphones are the reason people are using Facebook on their phone rather than on a computer. David Ebersman, Facebook’s chief financial officer, said in a conference call that, “We view the product development investments we’re making in the mobile platform as critical to drive continued user growth and deepen engagement.”

Not everything is great news. Operating expenses for the company were significantly higher last quarter. The company ended the quarter with about 4,300 employees, a 9 percent increase from the second-quarter, according to Ebersman.

Facebook opened its first international engineering office in London earlier this month.

“We purchased $171 million in property and equipment in quarter three. We also paid $300 million upon closing the Instagram acquisition,” Ebersman said. Instagram is a mobile photo-sharing application. Facebook offered to purchase Instagram in April.

Despite higher operating costs, investors were pleased with what they heard from executives.

“Mobile is a bigger percentage than we thought and management was incredibly friendly to our questions,” said Pachter.

In the first nine months, Facebook lost $11 million, or 1 cent per diluted share, down from a profit of $463 million, or 36 cents per diluted share, in the year-ago period. Revenue rose 36 percent to $967 million from $613 million.

Facebook shares closed up $3.71, or 19 percent, to $23.21 Wednesday.