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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