Facebook Beat Earnings Estimates, So Why Aren't Investors Impressed?

Facebook Inc FB reported a second quarter EPS of $0.50 (vs. the Street estimate of $0.47) and sales of $4.04 billion (vs. $3.98 billion). MAUs rose to 1.49 billion, but investors were unimpressed. The stock initially fell more than 7 percent in after hours trading. As of 5:24 p.m. ET, the stock had recovered somewhat and was down less than 3 percent. Kim Forrest, VP and senior equity analyst at Fort Pitt Capital Group (a Pittsburgh-based wealth management firm with $1.7 billion in AUM), said that Facebook's MAU growth was "not that huge" because the social network had 1.44 billion users last quarter. "That's higher than what the consensus estimate was, which was 1.478 [billion]," Forrest told Benzinga. "I think the problem with Facebook is, you have to continue to grow monthly active users and to grow your ad revenue. I think they'd like to see that bigger than it was." John Divine, assistant editor at InvestorPlace, told Benzinga that it didn't "make a whole lot of sense" for investors to sell their shares of Facebook. "Maybe the algos saw something they didn't like," Divine theorized. "It could totally reverse tomorrow morning." Divine added that it depends on the earnings call, which started at 5:00 p.m. ET. "People will be looking for mobile numbers and any sense of how to monetize their properties and Instagram," he said.

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Free TV Is Not The Same As Social Media

Facebook might be under pressure because it can't simply monetize the heck out of its current users. "Unlike TV, where people have made the trade-off saying, 'I will get free TV, let's forget cable,' but back in the day all you needed was rabbit ears and you had free TV," said Forrest. "Your exchange was you had to sit through some commercials. Here's the difference: you are the content creator on the social networks. People don't particularly enjoy the fact that they have to sit through a video." Forrest said Facebook has to have a "really delicate hand" with the way ads are implemented. Otherwise, users might be turned off and leave the social network.

Is WhatsApp MIA?

Facebook has spent a great deal of time promoting Instagram and Oculus VR, but there has been very little hype for WhatsApp since the company acquired the firm for $19 billion. "From what I've heard it's got 800 million users," said Divine. "But users, it's sort of like page views. They're just users, they're not dollars until you turn them into dollars. I didn't understand the $19 billion acquisition myself but they are starting to do some money transfer services with WhatsApp." Divine estimated that co-founder and CEO Mark Zuckerberg will not charge a fee to use WhatsApp. "He's playing the long game with it and I think it's interesting," he said. "I still probably think they paid too much for it, especially compared to Instagram, which they paid $1 billion for. They're just now cranking the volume on getting advertisers involved there. I think that was probably a good pickup in 2012." Chris Paradysz, CEO of PM Digital PM Digital (a full-service marketing agency), said that Facebook is a "better business for a variety of reasons." "Better in the sense that advertisers understand the product, they understand individual products better," Paradysz told Benzinga. "They understand the value that Facebook is able to deliver now relative to the third-party data they're using." Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.