Facebook analysts say to hell with GAAP…

October 25, 2012

On Tuesday afternoon, Facebook (FB) released its third quarter earnings right on schedule, unlike some other companies that have managed to blow the timing of their 3rd quarter releases over the past week as I documented over on DealBook.

Starting Tuesday afternoon, journalists at some of the largest outlets around began using words like “brilliant” to describe Facebook’s earnings. The headline at AllThingsD was “Facebook delivers“. Bloomberg noted that third quarter sales “beat expectations”.

By Wednesday morning, analysts were practically falling all over themselves to raise their ratings on the stock. Streetinsider has a good round-up here of the various analysts thoughts and details on their ratings and price targets. As those analysts’ sage thoughts got disseminated around the inter-webs, Facebook stock started rising, closing up nearly 20% yesterday.

But here’s the thing that caught our attention: despite reading way more Facebook earnings stories than we’d ever care to read, we couldn’t find a single example of someone noting that Facebook actually lost money during the quarter. Yes, you read that correctly. Facebook lost 2 cents a share during the quarter, compared with a profit of 10 cents a share a year earlier. Of course, the loss is “only” a loss under GAAP (insert sarcasm here), due to a $431 million tax expense from all those options that Facebook issued to its employees. Why should journalists and more importantly analysts who still play a big roll in what many individual investors wind up with in their portfolios pay any attention to bothersome accounting rules?

To Facebook’s credit, they actually make the GAAP numbers very clear in their earnings release, putting the numbers front and center, instead of burying them in a footnote, or, even worse, the 10-Q (which Facebook filed on Wednesday afternoon). That journalists and analysts chose to ignore them isn’t Facebook’s fault.

*AllThingsD’s Mike Issac actually followed up on Wednesday with a pretty good story looking at what happens when all those options for stock that climbed by nearly 20% on Wednesday suddenly flood the market, which could happen as soon as Monday.

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