Read This Before You 'Unfriend' Facebook's Stock Again

"It's complicated."

There really aren't two words that better describe the mercurial relationship between Wall Street and Facebook (FB).

Shares of the social-networking giant took a hit on Friday after it failed to post blowout quarterly results. But it certainly wasn't the first time the market and the world's leading social network didn't see eye to eye.

It was just two months ago that Facebook went public at $38, resulting in a beefy market capitalization of $104 billion. Wall Street shook its head, sending the stock lower on its second day of trading.

Analysts have panned the company's $1 billion acquisition of Instagram. They don't like the way CEO Mark Zuckerberg dresses at investor conferences -- when he bothers to show up at all. When social-gaming giant Zynga (ZNGA) posted disappointing quarterly results earlier in the week, Facebook shares also took a hit. And why not? Zynga accounted for 15% of Facebook's revenue during this year's first quarter.

However, the bashing the stock took for Thursday night's report doesn't seem entirely fair. It wasn't that bad, and the bearish argument isn't that good.

First Impressions of the Second Quarter

Facebook went public in mid-May, so this week's report was the company's first quarterly glimpse since going public.

Revenue climbed 32% to $1.18 billion during the quarter. Margins contracted as the company ramped up its spending, but earnings of $0.12 a share matched both what the market was expecting and what the company had earned on a per-share basis a year earlier.

Ad revenue accounted for 84% of the company's revenue, rising 28% over the past year on a combination of an 18% uptick in the number of ads it served up and a 9% increase in the average price for each ad.

That final point is important. Advertisers were willing to spend 9% more for a Facebook lead than they were a year earlier. Stack that up against dot-com advertising leader Google (GOOG), which posted a decline in revenue per click during the same three-month period.

Any concerns that weakness at Zynga would carry over to Facebook were overblown. Non-advertising revenue grew even faster than ad revenue.

Connections Keep Connecting

Reports have surfaced in recent weeks suggesting that Facebook's popularity was peaking in some markets. We'll need another quarter to see if that's true, but engagement during the quarter itself was solid.

There are now 955 million monthly active users on Facebook, 29% higher than the roll call at last year's midpoint. Facebook was at 901 million monthly active users by the end of March, so visitors continue to engage.

No matter how many people swear off Facebook as they close out their accounts, even more people are signing up to begin connecting with friends and family members.

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Monetizing Mobile

A popular knock on Facebook is that too many users are switching to wireless gadgets to surf the Web and check on Facebook. This poses a monetization problem for Facebook: On a desktop or laptop, Facebook can serve up targeted ads on the right side of the page, but there just isn't enough room to make this work on small smartphone screens.

Facebook's savvy solution has been Sponsored Stories.

Let's take Target (TGT), for example. If you have a friend or more that has "liked" the cheap chic discounter in the past, a promotional Target status update may pop up in your screen. It's an ad, but it may not seem that way, as it's being presented attached to the names of your Facebook connections that like Target.

Sponsored Links

Facebook finds that this new type of ad is delivering higher click-through rates than the company's traditional ads. Inserting the ad in the news feed also makes it easy to work these spots into mobile.

Now that 543 million of Facebook's 955 million monthly active users are checking in on mobile devices -- up 67% over the past year -- the site finally has a reason to applaud the smartphone and tablet revolutions.

So what's so bad about this report? Was Facebook overvalued when it hit the market two months ago as a $104 billion company? Yes. Now that it has shed more than a third of its IPO value, it's time to start taking Facebook and Zuckerberg seriously.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of Google and Facebook. Motley Fool newsletter services have recommended buying shares of Facebook and Google.

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