Unhappy with Facebook’s first financial report as a public company
Thursday, investors fled the stock in droves even as Mark Zuckerberg, the
company’s chief executive, extolled its growth prospects to industry analysts.
Facebook’s
stock lost 18 percent of its value Thursday. The first blow came during regular
trading largely because of the poor results posted by Zynga, the social game
company that uses Facebook as a platform.
But the
stock continued to plummet in after-hours trading after Facebook announced its
own numbers, dipping below $24, a record low. Since going public two months ago
at $38 a share, Facebook shares have lost 37 percent of their value.
Mr.
Zuckerberg has rarely spoken publicly about the company he built in his dorm
room eight years ago. But nothing he and his lieutenants said Thursday about
their plans to make money by advertising to Facebook users seemed to reassure
investors.
“Obviously we’re
disappointed about how the stock is traded,” said David Ebersman, the chief
financial officer. “But the important thing for us is to stay focused on the
fact that we’re the same company now as we were before.”
The
financial report for the company’s second quarter did contain some good news.
Revenue was up 32 percent, beating analysts’ predictions. But profits were not
impressive, and the total number of users inched up only slowly.
“With the
unprecedented hype around the company’s I.P.O., some investors believe more
upside would have materialized — higher revenues, higher earnings,” said Jordan
Rohan, an analyst at Stifel Nicolaus.
During the
call with analysts, company executives emphasized their efforts to make
Facebook accessible on mobile devices. The company only recently started
surfacing advertisements in the mobile newsfeed. And while company executives
said they were seeing promising results, they also said they were being careful
not to crowd the mobile platform with too many advertisements, lest it spoil
the user experience.
The company
said 543 million people looked at Facebook on their mobile devices at the end
of June, a 67 percent jump from last year.
“The shift towards
mobile is incredibly important,” Mr. Zuckerberg said during the call.
The company
said its revenue for the quarter climbed to $1.18 billion, from $895 million;
most of it came from advertising. The company reported a net loss of $157
million, or 8 cents a share, compared with net income of $240 million, or 11
cents a share for the same quarter last year. Much of that was because of stock
compensation, and on an adjusted basis, the company posted a profit of 12 cents
a share, or $295 million, meeting analysts’ expectations.
Facebook,
which already has nearly a billion users worldwide, is facing an inevitable
slowdown in growth. The real issue, analysts have said, is whether the company
can keep users glued to the site and profit from them by offering targeted
advertisements, particularly on mobile devices.
“Before they were a
public company, Facebook was judged by growth in users,” said Colin Sebastian,
an analyst at Robert W. Baird & Company. “Now that they are so well
penetrated in most Western markets, growth has to translate into monetization.”
Of
particular concern, said Mark Mahaney, a Citibank analyst, is whether users are
spending as much time on the site every day, considering how many more
advertisements they are seeing on both mobile and desktop platforms. “Could you
see Facebook fatigue? Could you see users using it less?” Mr. Mahaney asked.
Facebook,
which is based in Menlo Park, Calif., made its debut on Wall Street in May.
Investors were not expecting to see rosy earnings during this quarter, analysts
said. Several said that the company would enjoy a grace period of sorts until
early 2013 at least, but that it needed to lay out a clear road map to growing
profits.
Advertising
is Facebook’s principal moneymaker; the sale of mostly virtual goods on Zynga
makes up the rest. But Facebook is widely thought to have other channels to
make money. Its crown jewel is what its users share about themselves, including
who they are, where they went to school, pictures of their children, political
predilections and what they read and listen to.
Facebook has
been aggressively experimenting with how to exploit all this data for its
advertising efforts. It is testing how to sell advertisements elsewhere on the
Web. And through its newest advertising tool, Facebook Exchange, it tracks the
behavior of its users when they are visiting other sites and then serves up
tailored advertisements when they return to Facebook.
Facebook has
also been experimenting with so-called Sponsored Stories, which turn a user’s
“like” of a certain brand into a product endorsement to his or her Facebook
friends. On the earnings call, company executives said this kind of advertising
was more lucrative than others. They said they planned to introduce more of
these advertisements in the mobile and desktop platforms.
“We believe the best
type of advertising is a message from their friends,” Mr. Zuckerberg said.
But the
Sponsored Stories are at the center of a legal dispute. In a pending settlement
of a class-action lawsuit, Facebook has agreed to make potentially costly
changes to how these advertisements work.
The company
has been aggressive in obtaining tools and talent to address its mobile
challenge. In recent weeks it acquired a number of start-ups, including
Glancee, a location sharing app whose creators are based in San Francisco;
Face.com, an Israeli facial recognition technology company; and Acrylic
Software, a Canadian application developer.
Brian
Wieser, an analyst with Pivotal Research Group, said Facebook was such a new
kind of company that it was difficult to know how to measure its progress.
“It is not a utility,
it is not a newspaper, it’s not manufacturing,” he said. “It is unproven in
terms of its durability.”
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