(Reuters) - Facebook Inc reported a drastic slowdown in revenue growth and
offered no financial forecasts to ease worries over the prospects for boosting
advertising in its first
earnings report as a public
company, sending its shares to a record low.
Facebook executives pointed to early signs of success in new advertising
services, but the lack of a detailed financial outlook went over poorly with
investors hoping for evidence that the company could soon reverse the continuing
slowdown in its business.
"The question is, do you get a re-acceleration in the business at some
point?" said Oppenheimer & Co analyst Jason Helfstein. "Because they didn't
give you guidance, you're going to have to wait to find out what
happens."
Shares of Facebook, which have shed a third of their value since their
haphazard May debut at $38, broke below $24 in frenzied after-hours trading. The
social networking pioneer was the first American company to debut with a market
value of more than $100 billion.
Mark Zuckerberg, the 28-year-old chief executive who created Facebook in his
Harvard dorm room, said the company was seeing encouraging results from newly
introduced advertising services and that Facebook now has a "clear path" to
building a strong mobile business.
"Mobile is a huge opportunity for Facebook," said Zuckerberg, noting that the
company was investing "very heavily" in improving its mobile apps.
The company, which competes with established Web companies such as Google Inc
and Yahoo Inc, said its capital expenditures more than tripled to $413 million
in the second quarter.
Facebook's
finance chief also said operating
expenses in the second half of the year would increase significantly compared
with the rate in year-ago period.
"At this early stage of our growth, investment is a top priority as opposed
to managing for a target margin," said CFO David Ebersman.
Facebook posted a net loss of $157 million, or 8 cents a share, in the second
quarter after taking hefty stock compensation charges related to its IPO. That
compared to net income of $240 million, or 11 cents, in the year-ago
quarter.
Excluding the charges, Facebook said it earned 12 cents a share, in line with
Wall Street's forecast.
RISING AD PRICES
Facebook has raced through eight years of break-neck growth that was to have
culminated with its May initial public offering.
Instead, its share price has headed south as investors questioned its
valuation of more than 50 times earnings and its longer-term ability to sustain
growth as users migrate to mobile devices.
Monthly active users grew to 955 million at the end of the second quarter, up
from 901 million at the end of March. But mobile monthly active users surged 67
percent year-on-year to 543 million users, adding further pressure on Facebook's
business, which only recently began to offer limited forms of mobile
advertising.
Facebook's Ebersman noted that advertising "impressions" lagged user growth
during the second quarter but that new social ads, which appear directly in
Facebook users' "newsfeeds", were driving up ad rates.
The average price of a Facebook ad increased 9 percent during the quarter,
Ebersman said, driven primarily by the United States where rates jumped 20
percent with the company's newly released social ads.
"It's a positive, but it's still early," said Ken Sena, an analyst with
Evercore Partners, about the performance of Facebook's new ads.
"We won't likely be seeing much material impact any time soon," he
said.
The stock price is also likely to come under further pressure, Sena warned,
from the imminent expiry of a stock lockup imposed on many Facebook employees
after the IPO. That could bring a flood of new shares to the market.
A CHALLENGE ANEW
Facebook reported revenue increased 32 percent in the second quarter to $1.18
billion, a hair above the average analyst forecast of $1.15 billion according to
Thomson Reuters I/B/E/S.
Facebook's growth rate in the second quarter was the slowest since the first
three months of 2011, the earliest period for which the company has disclosed
information about its revenue growth.
"They beat, but the Street was looking for more and that's why I think shares
turned lower after an initial bounce," said Michael Matousek, a senior trader at
U.S. Global Investors Inc, which manages about $3 billion.
"The big question with the stock is how it will monetize its billion or so
users. A lot of people think they can't convert those users to money.
On Wednesday, social games leader Zynga - which accounts for over one-10th of
Facebook's revenue and faces the same challenge of earning off mobile users -
stunned investors after slashing its 2012 earnings forecasts.
That helped wipe 9 percent off Facebook's value during regular trading on
Thursday.
Zynga and Facebook were among a bevy of hot tech prospects that went public
in 2011 on the back of renewed dot-com mania gripping Wall Street. They, along
with fellow 2011 debutante Groupon Inc, have since gone into a
tailspin.
Zuckerberg, who owns just north of half a billion shares, saw $2.7 billion of
his paper wealth evaporate on Thursday, taking into account the after-hours
dive.
Goldman Sachs, lead adviser on the IPO and the largest institutional
shareholder with 41.6 million shares or a 6.6 percent stake, shed $222 million.
Fidelity, the largest U.S. fund, which owns 19.8 million shares, saw $106
million go up in smoke.
Executives told analysts on a conference call that Facebook aimed for closer
integration with popular gadgets such as Apple Inc's
iPad and iPhone but Zuckerberg
dismissed widespread reports that it would design its own smartphone.
