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Facebook’s stock tumbles to new low

Investors balk as company reports big loss in quarter

- The Washington Times - Thursday, July 26, 2012

Two months after an ugly initial public offering, Facebook's stock is trading at the lowest level in company history after investors reacted poorly to a one-time $157 million loss in the second quarter of 2012.

It was a rough day for Facebook's stock. Shares tumbled below $24, down about 18 percent from the previous day's close, shortly after the earnings results were released.

"Our goal is to help every person stay connected and every product they use be a great social experience," said Facebook founder and CEO Mark Zuckerberg. "That's why we're so focused on investing in our priorities of mobile, platform and social ads to help people have these experiences with their friends."

In just eight years since Mr. Zuckerberg created Facebook in his Harvard dorm room, it has amassed some 955 million monthly active users.

But Facebook is finding that even some good results are disappointing investors who expect much more, analysts say.

"I am afraid Facebook is in for a very long and hard run until they really break away from this modest level of growth," said Jeff Kagan, a technology analyst based in Atlanta. "The marketplace is really expecting something very big and very grand, and so far Facebook has disappointed."

Facebook reported a $157 million loss for the quarter, but much of that was due to a one-time expense that led to a loss of 8 cents per share. The company paid out $1.3 billion in share-based compensation to employees surrounding its IPO, and for related payroll-tax expenses.

Otherwise, adjusted earnings would have been 12 cents per share, which is on par with its earnings increase the same period a year ago.

While that could be seen as good news going forward, many investors were still disappointed with the modest adjusted results.

Revenue jumped to $1.18 billion, up 32 percent from last year's $895 million for the same quarter. That ever-so-slightly beat analysts' estimates, but investors still would like to see more growth.

Most of Facebook's revenue came from advertising. It sold $992 million in ads, up 28 percent from the same quarter last year.

Facebook has begun to focus on sponsored stories, which pop up in users' news feeds, and other social ads.

"The best type of advertising is a message from a friend," Mr. Zuckerberg told investors in an earnings call.

Sheryl Sandberg, Facebook's chief operating officer, explained that these ads have at a 98 percent better recall rate than other online ads.

"This is not surprising since people are more likely to remember a message that comes from a friend," she said.

Facebook also is looking to grow in the mobile arena. The company has 543 million monthly active mobile users, which is a 67 percent increase from last year at the same time.

"This shift toward mobile is incredibly important," Mr. Zuckerberg said.

There have been rumors of a Facebook smartphone, and Mr. Kagan said that could come within 18 months.

Facebook's stock took a hit even before Thursday's earnings results were released. The world's largest social network, which depends on Zynga for a sizable chunk of revenue, saw shares fall $2.50, or 8.5 percent, to close at $26.84 on the news that the social gaming company's earnings had disappointed investors a day earlier.

But Facebook shares plunged further during after-hours trading, as investors got their first glimpse of the company's earnings report. It dropped another $3, or 11 percent to less than $24.

This comes after Facebook's IPO failed to live up to the hype in May. It has fallen more than 35 percent since it first hit the market at $38.

"Investors figured out it was hyped," said Paul McWilliams, editor of the New Jersey-based Next Inning Technology Research. "They got past the hype."

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