Was Facebook's Blowout Quarter Overblown?

NEW YORK (TheStreet) -- They're calling it Facebook's (KO) "blowout" quarter.

As TheStreet readers learned on our live blog, the company earned 19 cents a share on $1.81 billion in revenue in the second quarter, 88% of that from ads, and 41% of those ads on mobile devices.

Our Chris Ciaccia summed it up during our coverage of the earnings, "Pretty impressive Mr. Zuck," referring to CEO Mark Zuckerberg, who is still only 29.

In overnight trading, the stock was up over 20%, to nearly $33. On a percentage gain, that's a much bigger pop than Apple ( AAPL) got on its earnings. The Facebook IPO was priced at $38 a share, and so initial investors may no longer be underwater soon.

If it can maintain that 19 cent-per-share earnings pace for a year, and hold its pre-market price of $32.72, you're looking at a price-earnings multiple of "just" 43, which is almost reasonable.

The official release focused on comparable numbers from the same quarter a year ago. Sales were up 53%, and non-GAAP earnings were up 54%. The operating margin for fiscal 2013, so far, comes to 29%.

Facebook said that it now has more than 1 million active advertisers, many of them local advertisers; that its stripped down "Facebook for every phone" interface, which works on feature phones, now has more than 100 million active users each month; and that 100,000 apps have now been built on its Parse cloud platform.

Pretty impressive, but here's an interesting figure: So far this year Facebook has spent $606 million on plant and equipment, mainly its data centers. It spent $959 million on plant and equipment in the first six months of 2012.

You can say it's getting more efficient, using its Open Compute Project designs and renewable energy, or you can note it spent $353 million less on this capital account over six months, which just happens to be $20 million more than the $333 million it reported as net income for the quarter. Half its net income comes from spending less on infrastructure.

Facebook has data centers in Oregon, North Carolina and Sweden, with another one on the way in Iowa. Building out each of them will cost about $1 billion, but a big hunk of that is in the initial build -- an under-utilized center costs relatively little to expand. Facebook benefitted from past investments this quarter, but it will have to keep building to keep up and spend more.

Another cloud came from Greenlight, a market-research company, which showed 15% of Facebook users are getting annoyed with its ads, and 8% are willing to pay $10 per month or more to get rid of them.

Greenlight brought up the example of Altavista, an old-line search engine recently shuttered by Yahoo! ( YHOO), which was once a player when it showered users with ads, but was unseated by Google's ( GOOG) cleaner interface.

Greenlight's survey also showed that close to 70% say they "never" or "rarely" click on advertisements or sponsored listings in Facebook, indicating that consumer apathy is very real.

Which users are most annoyed wasn't specified, but it's likely that heaviest users were most annoyed, and in a world where users can switch loyalties by word of mouse, it's something to consider.

So happy days? Maybe. Facebook has proven it's a player in mobile, despite the widely derided "Facebook Home" skin for Android. It has proven it can monetize its users. But will it keep them as they grow up? Will its capital costs rise or fall in the future? Will they turn off to its increasingly-intrusive ads and suddenly go away?

Stay tuned.

At the time of publication, the author was long AAPL, GOOG and YHOO.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Dana Blankenhorn has been a business journalist since 1978, and a tech reporter since 1982. His specialty has been getting to the future ahead of the crowd, then leaving before success arrived. That meant covering the Internet in 1985, e-commerce in 1994, the Internet of Things in 2005, open source in 2005 and, since 2010, renewable energy. He has written for every medium from newspapers and magazines to Web sites, from books to blogs. He still seeks tomorrow from his Craftsman home in Atlanta.

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