Not to take sides here, but that's something I've always wondered when looking at the numbers.
1. It didn't make $700 million. It grossed $700 million. There is a big difference there. The actual profit is far less. Sony reportedly spent $255 million on the production budget and $150 million+ on promotion. Investors don't spend $400 million on something just to make a small profit.
2. In practically every market save China (which increased for reasons outside of the film), the gross dropped considerably from TASM (which itself did a lot worse than SM3).
3. In the most important market, the US (and Canada which is included in the domestic gross) the film barely grossed $200 million, which was a whopping $50 million less than the production budget. This is important not only because it is the largest market, but because it is the market in which the studio keeps the largest percentage of the gross (approximately 50-55%). The worst market? That would be China, the one major market where the gross increased. There the studio only keeps 20-25% of the gross. This means for every dollar a film doesn't make in the US, it needs to make two to two and a half dollars in China to keep even. It didn't do that.
4. The film had mediocre reviews and poor legs at the box office (a higher than normal percentage of the gross was made on the opening weekend). This shows that the film was not all that well liked. These means that the downward slide of box office receipts from one film to the next is likely to continue to at least the next installment. Some people (not all or even most, but enough to cause a problem) will not see the next film because they didn't like this one.
5. Sony wanted to use (and still is) using TASM2 to launch a series of spinoffs to support a larger universe. To do that properly, Sony needed a massive success and while TASM2 isn't going to actually lose money, it certainly wasn't that. Now the spinoffs are going to be a much harder sell.
So yeah, it wasn't a bomb, but it was a massive disappointment. Unfortunately Nikki Finke ran into legal problems before she was able to post her writeup detailing the backstage problems at Sony in the aftermath of this film. I was really looking forward to reading it.