Facebook posts loss on one-time charges
Ending a tumultuous day for social media companies, Facebook posted a loss Thursday in its first test as a public company.
Investors fled the social-networking giant in after-hours trading following a quarterly loss of $157 million, which included one-time charges related to the accounting of stock awards disclosed amid the botched initial public offering on May 18.
The social-networking giant, which went public in May with an eye-popping high valuation, reported on an adjusted basis a profit of $295 million, or 12 cents a share, on revenue of $1.18 billion for its second fiscal quarter. That met the consensus estimate for the quarter.
The company's stock plunged 11% in after-hours trading to $23.77 after losing nearly as much during the day's trading session. And the stocks of other social media companies slumped, among them Zynga, Groupon, LinkedIn and Pandora.
Meanwhile, a problem at Twitter's data centers took the micro-blogging site offline for several hours, affecting millions of its users. Google Chat also crashed.
The stakes could not be higher for social-networking giant after its much-anticipated IPO fizzled amid questions about its online and mobile advertising business. Its initial valuation of $100 billion is now $60 billion.
There was some good news. The social-networking giant's revenue of $1.18 billion for its second fiscal quarter compared to consensus estimates of $1.15 billion.
It was the first quarterly report for Facebook as a public company. It's unusual for a company to miss estimates on its first quarter as a public company, says Jay Ritter, professor of finance at the University of Florida. When companies go public, they typically have a solid outlook at least for the first few months.
Seeing Facebook's earnings coming in roughly in line with expectations was a disappointment for investors who have been hoping for more, says Jordan Rohan of Stifel Nicolaus. "Investors still hung to the hope that Facebook would rise to the occasion," he says.
Investors response to Facebook's report shows just how jaded Internet investors have become, he says. "It takes a particularly special performance for a stock to go up on its earnings," he says. "That's the rhythm of this quarter earnings period."
Facebook had warned investors that the quarter wasn't going to be a stellar one, by updating the risk section of its prospectus, Rohan says. "A company wouldn't do that unless the results were going to be uninspiring," he says.
Rohan continues to rate the stock a "hold." "This quarter's fundamentals don't seem to change the story of the outlook," he says.
"They have to show they can justify" even that lower valuation, says Lucy Jacobs, chief operating officer of Spruce Media, a technology platform for social-media advertising. She said Facebook has made several changes to goose ad revenue.
Like nearly every business in social media and beyond, Facebook is betting a large portion of its future on mobile ads. Yet few companies, including Facebook, have been able to capitalize on the promise. The popularity of mobile devices comes, in part, from their lack of ads.
"Mobile is a huge opportunity," CEO Mark Zuckerberg said on a conference call with analysts, but he downplayed a rumored mobile phone from Facebook, adding that it "wouldn't make much sense." There had been speculation prior to the call that Zuckerberg might skip the conference call.
