On Thursday, Facebook shared its most recent financial report with investors, the first such information since the company went public. And the response wasn’t good. CEO Mark Zuckerberg continued to speak of the company’s growth potential, but based on the market reaction, investors aren’t buying. Just before 11AM this morning, Facebook stock was down a full 14%, to a new low of $23 a share. On top of the 8% decline from Thursday, due to the poor earnings from Zynga, Facebook’s partner in social gaming, and the news wasn’t pretty. The stock went public a mere two months ago, and has dropped 40% in value since its initial offering at $38 a share.
Zuckerberg rarely addresses the general public on issues concerning Facebook, and nothing he or the other executives said during their financial call made a real difference for investors. CFO David Ebersman acknowledged their disappointment, but asked investors to maintain their confidence, based on the fact that the platform of Facebook is as strong as it ever has been. And the numbers do back that up. Facebook’s overall revenue rose 32% last quarter, which actually outpaced most predictions. But the number of users didn’t increase as expected, and the profit margin was minor.
Analysts are a bit baffled at the sudden regression, considering the massive hype that led up to the public offering. All of that excitement should have led to higher earnings for investors, which haven’t yet materialized. Facebook executives pointed to the company’s increasing efforts in mobile markets, including the recent addition of ads on Facebook’s mobile platforms. The results of that are encouraging, but Facebook’s execs warned that they have to walk a fine line, so that users aren’t disappointed with the mobile experience. So far, the strategy is working. More than 540 million people accessed Facebook mobile by the end of June, which is nearly a 70% increase from the same time last year.
The specific revenue numbers were decidedly mixed. Revenues for the quarter rose from $895 million to $1.18 billion, on the backs of the increased advertising, while the company posted a net loss of nearly $160 million. Compared to a net income this time last year of $240 million, it’s clear why investors are so concerned. But many investors feel a slowdown in growth was inevitable. Facebook has almost a billion users around the world, and it just can’t keep growing at the same rates. The real test may now be imminent. Users have a lot of choices when it comes to social networks, and whether they will stick around with an increase in targeted ads, especially on their mobile devices, is a real question. Before Facebook went public, user growth was the only measure of success that really mattered. But now that the company must answer to stockholders, all of those users have to be further monetized, or the excitement will die in a hurry.
Investors, though disappointed, can probably be counted on to stick around. The company only went public two months ago, and most analysts expect there to be a significant honeymoon period, at least until early next year. Anyone experienced with daytrade knows you have to give these new IPOs time to steady out before you can really get a baseline, but if Facebook wants to add revenues, they’re going to need to share their strategy for increasing profits, even in the short term.
Evan Fischer is a freelance writer and part-time student at California Lutheran University in Thousand Oaks, California.