Facebook’s debut results disappoint
Facebook’s shares have plummeted to a record low after its first financial report since going public failed to convince investors it can turnaround a slowdown in growth in its advertising revenues.
The company did not comment on its long term financial outlook in its second quarter earnings report, which in part led to Facebook shares plummeting 3% to below $24 (£15) in after hours trading – a third off their original IPO value.
Facebook’s revenues rose 32% year on year to $1.8bn (£1.1bn), although this is a slowdown from the growth of 45% reported in the first quarter. The slowdown, however, was not as steep as analysts had predicted.
Advertising represented 84% of total revenue, while payments, for virtual goods via games such as Zynga’s portfolio and other fees totalled $192m (£122m) in the period. Revenue from advertising grew 28%, down from the 36% reported the previous quarter.
Faceboook says it has benefited from the roll out of new ad formats and now has a “clear path” to creating a sturdy mobile business. The social network recently expanded the roll out of Sponsored Stories ads in the news feed, allowing advertisers to place such ads on mobile.
Sheryl Sandberg, Facebook’s chief operating officer, says the product is generating the company about “half a million dollars a day”.
The average price of placing an ad on Facebook rose 9% in the quarter, which the company says was driven by the introduction of new types of ad formats.
Facebook used its report to address growing concern from advertisers over whether running paid-for campaigns on the social network leads to tangible business results.
It said it now has independent ROI data from more than 60 ad campaigns, using a variety of third party methodologies such as panels and marketing mix models. It has found that 70% of campaigns resulted in three times the return on ad spend or better and that 49% of campaigns achieved ROI of five times or better.
Overall Facebook posted a $157m (£100m) loss in the quarter due to charges related to its IPO.
The company did not provide any forecasts as to how it plans to monetise its 543 million monthly active users, which analysts say is key to its future success. Its number of mobile users has grown 67% year on year, while overall users increased 29% year on year to 955 million.
David Wain-Heapy, operations director at social media specialists Best Response Social, says: “What’s very clear is that Facebook needs to make a huge and concerted push into mobile. Mobile is the future but for the time being it’s acting as a fundamental drag on the stock.
“Facebook needs a stronger mobile strategy but that’s simply not evident yet. Is it moving as fast as it should be within the mobile space? Probably not. The IPO may have seen it take its eye of the ball.”
