Facebook and PayPal Just Made Everyone Do a Double Take -- Watch 'Five Before the Bell'
Tech earnings are coming in hot.

Facebook (FB) blew the minds of its investors with its earnings, again. PayPal (PYPL) crushed it, too.

In other non tech news...

European stocks are messing up the global equity rally this morning as a series of disappointing earnings on the busiest reporting day of the year trims benchmark gains and raises questions of corporate profitability in an otherwise robust economy.

Asia teed-up Europe nicely with the MSCI Asia ex-Japan index rising 1% to a 10-year high after Yellen did her best Goldilocks impression last night by hinting that slowing inflation might not be temporary. The Nikkei also bumped 0.2% higher to 20,079.64 but gains were limited by a stronger yen.

However, we're shanking it into the woods this morning after earnings misses/outlook downgrades from Nestle, Deutsche Bank (DB) , Bayer, Volkswagen (VLKAY) and AstraZeneca (AZN) (huge fall after its MYSTIC trial failure) on a day when companies worth more than $3 trillion are publishing quarterly or half-year updates. Upside surprises came from (of all places!) telcos (Telefonica and Orange) while Shell and Roche also beat the Street.

TheStreet's BIGGEST Story of the Morning

  • By: Annie Palmer

Facebook gave investors a lot to be excited about on its second-quarter earnings call late Wednesday.

The call came after the social media giant beat on the top and bottom line for the fiscal second quarter. Shares of Facebook were climbing 3.4% in after-hours trading on Wednesday to a record high of $171.30.

Facebook talked extensively about the business ecosystem surrounding Facebook Messenger and WhatsApp, noting that it sees a lot of opportunities to ramp up advertising on both platforms, as well as interactions between businesses and consumers. Whether accidentally or intentionally, one comment in particular from CEO Mark Zuckerberg triggered a wave of questions from investors on the call.

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This could prove to be an important development for Facebook as it faces slowing ad revenue growth. Facebook CFO Dave Wehner has continuously warned that the company is maxing out on the number of places that it can squeeze ads into users' news feeds, meaning that it needs to find other places to put them. Messenger, Instagram and WhatsApp are all emerging as new platforms for it to serve up ads.

Zuckerberg explained how Messenger and WhatsApp, which boast more than 2 billion daily users combined, are still early days in terms of user monetization. The company recently started testing ads in its Messenger app globally and expects to scale it out more over time.

"I want to see us move a little faster here, but I'm confident that we're going to get this right over the long-term," Zuckerberg said.

Yes, Facebook.
Yes, Facebook.
The comment sparked some interest from investors who were curious how Zuckerberg envisions Messenger and WhatsApp monetization unfolding over time. Zuckerberg said that he sees those areas as becoming a "big business" for Facebook over time, as the company rolls the in-app advertisements out to more and more markets globally. For now, though, the volume of advertisements is going to remain small, he noted.

That's partly because Facebook needs to figure out how users will respond to such a drastic change in the Messenger app and WhatsApp. Facebook has made some changes to its user interface that haven't gone over well in the past, such as adding the Stories feature to WhatsApp (it later brought back WhatsApp Status) and introducing Messenger Day.

"We're starting to put some ads in the product just to see the basic parameters on how that performs, how people like the ads or don't, how they work for businesses, and just to try to get an understanding of that," Zuckerberg explained. "So we're starting to run that across the world."

He added that the company is focused on creating "organic" interactions with users and businesses, in an effort to prevent it from feeling forced or overwhelming for consumers. Still, Facebook is focused on presenting Messenger and WhatsApp ads as a big opportunity for marketers, with Zuckerberg saying that Facebook is working on making it "the highest return on investment" for them. COO Sheryl Sandberg noted that Facebook is also increasingly looking to automated or personalized bots as a way of increasing interaction between businesses and consumers.

Wehner and Sandberg seemed to walk back Zuckerberg's optimism a bit in saying that the company is still early on in its process of monetizing messaging. Sandberg noted that it's too early to tell how users are responding to the new ads.

"It's not a near-term overall Facebook growth driver," Wehner told investors. "Much like Instagram in its early days, we're going to be cautious. But unlike Instagram, this isn't a feed product."

"So there are more unknowns here," Wehner added.

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