Facebook's first update riles investors

After a much-hyped IPO two months ago, Facebook is rapidly losing friends as its first results disappoint investors.

by Elizabeth Anderson
Last Updated: 27 Jul 2012
What a difference two months makes. Investors eagerly snapped up shares for $38 a piece when Facebook went public in May. Last night shares in the social networking giant fell 11% to $23.94 in frenzied after-hours trading after Facebook revealed a lacklustre quarter in its first earnings report as a public company.

Facebook’s financial report wasn’t all bad news. Revenue was up 32% to $1.18bn, beating analysts’ predictions. The number of monthly active users also rose to 955 million, a 29% increase on the same time a year ago. But even that has set alarm bells ringing, as it suggests growth is continuing its downward spiral.  In the final quarter of 2010, Facebook’s monthly users rose by 120%; since then growth has slowed by roughly a fifth each quarter.  

The number of users accessing Facebook on their mobiles also jumped 67% year-on-year to 543 million. The downside is it makes the Californian company less money, as the mobile site carries fewer adverts than the desktop site. In fact, Facebook only recently started putting adverts in the mobile newsfeed. Some 84% of Facebook’s revenues come from advertising, making $992m for the company in the second quarter.

Money also comes in from the sale of mostly virtual goods on Zynga. But on Wednesday the social games company knocked investors sideways by slashing its 2012 earnings forecasts. This helped Facebook’s shares slide 9% on Thursday, even before its own earnings were announced.  

Overall Facebook reported a loss of $157m for the quarter, but this was mainly because of heavy compensation charges associated with the IPO. Many analysts think Facebook is still worth a punt but warn its challenges are keeping users glued to the site; and continuing to profit from them by offering targeted ads, particularly on mobile devices. That won’t be an easy task.

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