Facebook Q2 results top views on rapid mobile user growth

Facebook (FB) revealed stronger-than-expected second-quarter profits and sales after the close on Wednesday, but it wasn't enough to impress investors and the firm's shares fell slightly in extended trading.

The world's biggest social network said it earned adjusted profits of 50 cents a share, up 16% from a year ago and topping Wall Street analysts' average estimate by three cents. Sales, meanwhile, grew 39% to $4.04 billion, also exceeding estimates of $3.99 billion.

Facebook CEO Mark Zuckerberg has long warned that the company would be increasing expenses more quickly than revenue as it moved to grab an increasing share of users' attention around the world, especially on mobile and video. Total costs and expenses in the latest quarter rose 82% to $2.8 billion and net income measured according to generally accepted accounting principles declined 9% to $719 million.

But the bet looks to be paying off, as Facebook's average monthly active users climbed 13% year-over-year to 1.49 billion and daily active users jumped 17% to 968 million. While many of its competitors are struggling with the shift from desktop computers to mobile phones, Facebook increased its daily mobile user base by 29% to 844 million.

On a call with analysts, Zuckerberg ticked off more than a dozen improvements to Facebook's services and apps. The company's separate Messenger app now has more than 700 million users, he said. "These milestones are a good sign that we’re on the right path here," Zuckerberg said.

CFO hits stock

CFO David Wehner warned investors that revenue growth at Facebook would continue to slow for the rest of the year. "Since the first quarter of 2014, we've seen year-over-year advertising revenue growth rates decline each subsequent quarter," he said. "We expect this trend to continue in Q3 and Q4 as we continue to grow off a much larger base (and) face currency headwinds to the strong dollar."

While Wehner didn't give specific numbers, analysts had been expecting Facebook revenue would increase 36% in the third quarter from a year earlier and 34% in the fourth quarter, according to FactSet.

One analyst tried to get Wehner to ease up on the warning, suggesting he blame foreign exchange movements rather than a fundamental slowdown in advertising revenue growth, but the CFO wasn't biting. "I kind of reiterate what I said in my comments," he replied.

Wehner also disclosed that the company's photo sharing app, Instagram, apparently hasn't experienced as much growth this year as other Facebook services. The app has over 300 million users, he said, which is the same level Facebook reported at the end of last year.

Wehner's comments pushed the price of Facebook's shares down about 3% in extended traded. The shares had initially sold off as much as 5% on the results, but erased those losses as Zuckerberg and COO Sheryl Sandberg discussed highlights for the quarter. As of Wednesday's close, the stock was up about 24% for 2015.

Sandberg was positive about the early results of Facebook's new "buy" buttons, which allow users to buy something just by clicking on an advertisement on the service. "It's pretty early days," Sandberg told analysts. "We're excited by what we see in the e-commerce vertical, and we're going to continue to invest in growing that vertical as part of our ads business."

Facebook and Wall Street analysts focus on the company's profit excluding the cost of stock-based compensation, amortization of intangible assets and other costs counted under GAAP. Including those costs, Facebook earned 25 cents per share, down from 30 cents a year ago.