Facebook's earnings disappoint investors, match predictions
In its first earnings report as a publicly traded company, Facebook indicated its growth is slowing and profit margins are smaller than last year at this time. One analyst says, 'Facebook is no Google.'
FacebookÂ issued its first earnings report as a publicly traded company on Thursday, with numbers that managed both to match analystsâ€™ predictions and dismay investors who were hoping for a great deal more.
The worldâ€™s leading social network announced results for its last quarter that confirmed its revenue growth is slowing and its profit margin is smaller than a year ago. And even though top executives voiced high hopes for selling new kinds of â€śsocialâ€ť advertising, investors droveÂ Facebookâ€™sÂ stock price down in after-hours trading â€” to its lowest point since a controversial Wall Street debut that also disappointed investors.
â€śThe bottom line of this call is thatÂ FacebookÂ is no Google,â€ť said Karsten Weide, a social media analyst with the IDC research firm. Internet search giant Google reported its profit and sales both doubled in the first earnings period after its 2004 stock market debut.
FacebookÂ said its revenue grew 32 percent from a year ago, as the company took in $1.18 billion for the quarter ending in June. The company had a net loss of $157 million, after taking $1.3 billion in charges for employee stock grants. After factoring out those one-time charges,Â FacebookÂ reported earnings of 12 cents a share.
The results were just slightly better than analysts had forecast. Analysts surveyed by Thomson Reuters predicted, on average, thatÂ FacebookÂ would report earnings of 12 cents a share, excluding one-time charges, on revenue of $1.15 billion.
But in terms of growth,Â FacebookÂ was unable to match the 107 percent revenue increase that it reported a year ago. And whileÂ FacebookÂ reported 955 million monthly active users, up more than 25 percent from a year ago, that fell short of the 50 percent increase in users the company reported in July 2011.
FacebookÂ also said it delivered 2 percent fewer ads to users in the United States, as more people shifted to using the social network on smartphones and mobile devices, whereÂ FacebookÂ only recently started selling ads on an experimental basis.
CEO Mark Zuckerberg, in some of his first public remarks since the company went public in May, sought to assure investors thatÂ FacebookÂ is focused on delivering ads and other products to mobile users, whose numbers grew by 67 percent, to 543 million, over a year ago.
â€śMobile is a huge opportunity forÂ Facebook,â€ť he said during a conference call with Wall Street analysts.
But after being viewed as one of Silicon Valleyâ€™s hottest companies in recent years,Â FacebookÂ now finds itself working to convince investors and advertisers that its concept of â€śsocial advertisingâ€ť â€” ads that incorporate recommendations from usersâ€™ friends â€” can be the next big thing in online commerce.
Early tests of new social ads, including those appearing onÂ Facebookâ€™sÂ mobile platform, indicate they are more effective thanÂ Facebookâ€™sÂ traditional display advertising, Chief Operating Officer Sheryl Sandberg said Thursday.
But she saidÂ FacebookÂ is â€śstill in the early days of building that monetization engine,â€ť and she acknowledged that advertisers face a â€ślearning curveâ€ť in terms of understanding how to use those ads.
Social ads are so new that itâ€™s difficult to forecast what kind of revenue they will produce, added Chief Financial Officer David Ebersman, explaining whyÂ FacebookÂ would not offer â€śguidanceâ€ť or detailed projections for earnings in the next quarter or year.
Analysts said thatâ€™s another reason why investors showed little confidence inÂ Facebookâ€™sÂ stock. Most companies do offer those projections, although some, including Google, do not.
â€śNo guidance is a concern,â€ť said Arvind Bhatia, an analyst with Sterne Agee. But he added, â€śthis is a new medium. Thatâ€™s why theyâ€™re reluctant: They donâ€™t want to paint themselves into a corner.â€ť
Bhatia, who is still upbeat aboutÂ Facebookâ€™sÂ potential, said investors who reacted negatively â€śare focused too much on the short term.â€ť But IDCâ€™s Weide saidÂ FacebookÂ still hasnâ€™t proven the potential of its advertising efforts.
â€śThere has always been this talk about social advertising and how effective it will be, but it has not materialized,â€ť Weide said. â€śItâ€™s a story of hype versus reality.â€ť
Pressure onÂ FacebookÂ was already building after the online gaming company Zynga, whose business is closely tied toÂ Facebook, announced Wednesday that its earnings were far worse than expected.
Facebookâ€™sÂ stock closed Thursday at $26.84 and fell below $24 in late trading â€” the lowest itâ€™s been sinceFacebookâ€™sÂ May 18 initial public offering, when the stock debuted at $38. The highly anticipated IPO turned into a major disappointment for investors who expected the stock price to quickly shoot up.
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