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Facebook earnings: Great performance

(MoneyWatch) Facebook's (FB) strong second quarter shows that that even if the company has not yet found a way to the rapid growth that investors had expected when it first went public, CEO Mark Zuckerberg and his management team have nurtured strong performance and delighted investors.

The company reported revenue of $1.8 billion and net profit of $333 million, or 13 cents per diluted share, with mobile representing 41 percent of ad dollars. That was up from $1.2 billion in revenue and a loss of $157 million last year.

The stock was up 16.8 percent in after-hours trading, still short of its original $38 price, which took a tumble after the company's IPO last year. Analysts were expecting $1.6 billion in revenue and 14 cents in earnings per diluted share.

Aside from those numbers, investors have focused on a few key facts:

  • How much revenue comes from mobile

  • The average revenue per ad

  • Effectiveness of ads

  • New ad products that might translate into new ad revenue

  • Growth in users

Those are the numbers that might better indicate the future of the social network. After its hyped launch and a stock price that never returned to the dizzying heights of its initial valuation, Facebook has to prove that it can generate strong revenue growth. This quarter is another good step in that direction.

Facebook has battled the underachiever label since it went public more than a year ago. Given its thoroughly ad-driven business model, the company faces the same pressures of virtually infinite ad inventory and resulting downward pressure on prices faced by other sites and publishers.

Other revenue sources have yet to ease the company's financial burden. In the year-ago quarter, revenue came in at $1.184 billion, with roughly half of it generated by North American users, and 84 percent of sales came from advertising.

In this most recent quarter, ad revenue was about 88 percent of total revenue, a step backward. However, a little under 47 percent of revenue came from North America, so Facebook has made a bit of progress in diversifying its geographic revenue dependence. And only 45 percent of ad revenue was from North America, versus more than 48 percent last year.

Although year-over-year growth in average revenue per user for the quarter was strongest in North America ($3.76 versus $2.59), it increased even in Asia from $0.47 to $0.68. Asia is a key territory because it could offer strong user growth.

Speaking of user growth, Facebook claimed 1.16 billion monthly users last quarter, a 21 percent leap over the 955 million of a year ago.

Although Facebook still has that daunting initial valuation to meet, more performance could help the stock actually surpass its initial IPO price.

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