SAN FRANCISCO — Facebook’s first earnings report as a public company contained some good news Thursday, but still disappointed investors, who fled from the stock in after-hours trading.
Although the company’s revenue grew a bit beyond analysts’ expectations, user growth inched up only slightly.
The company reported a net loss of $157 million, or 8 cents a share, compared with net income of $240 million, or 11 cents a share, for the same quarter last year.
On an adjusted basis, the company reported a per-share profit of 12 cents, or $295 million.
Revenue climbed to $1.18 billion, from $885 million; most of it came from advertising.
The company did not break out how much of that advertising revenue came from the mobile platform. Increasing revenue from mobile devices — the gateway to Facebook for more than half of all users — is the company’s most pressing challenge.
Analysts predicted revenue of $1.15 billion for the quarter, an increase of 28 percent, according to a survey by Thomson Reuters last week. Last year in the same period, Facebook’s revenue nearly doubled.
The user base inched up, to 955 million total users worldwide from the 901 million reported in April.
Since going public two months ago, Facebook shares have lost a third of their value from the initial $38 per share. The stock tumbled a steep 8 percent to $26.84 in regular trading on Thursday, after one of its most important partners, the social gaming company called Zynga, posted poor results in its earnings report on Wednesday. After Facebook’s own numbers came out Thursday, its shares dropped 10 percent further in after-hours trading, to about $24.
“With unprecedented hype around company’s I.P.O., some investors believe more upside would have materialized — higher revenues, higher earnings,” said Jordan Rohan, an analyst with Stifel Nicolaus.
Analysts had said in the days leading up to the earnings report that they did not expect Facebook to continue to draw new users, as they have for several years, like moths to a flame. Facebook already has nearly a billion users worldwide, which inevitably means user growth would slow down.
More important, analysts said, was whether Facebook can keep its users engaged on the site for longer stretches of time and profit from them by offering targeted advertisements, particularly on mobile devices.
“Before they were a public company Facebook was judged by growth in users,” said Colin Sebastian, an analyst at R.W. Baird. “Now that they are so well penetrated in most Western markets, growth has to translate into monetization.”
Of particular concern, said Citibank analyst Mark Mahaney, is whether users are spending as much time on the site every day, considering how many more advertisements they are seeing on both mobile and desktop platforms. That question is certainly expected to come up in the earnings call. “Could you see users using it less?” Mr. Mahaney wondered. Facebook, which is based in Menlo Park, Calif., faces high expectations on Wall Street, given its meteoric rise and its $104 billion valuation during its initial public offering in May. But it still has some room to prove itself.
At its debut on Wall Street in May, the company traded at $38 a share. After a rocky opening, shares fell, plummeting to a low of $25 at one point. It recent weeks, they have held at just under $30.
Investors were not expecting to see rosy earnings during this quarter, analysts said. Several said that the company would enjoy a grace period of sorts until early 2013 at least, but that it needs to lay out a clear road map to growing profits.
“Every time you have a high valuation it raises the bar,” said Aaron Kessler, an analyst at Raymond James. “They have some room, a few months, to show their improved monetization.”
Advertising is Facebook’s principal moneymaker; the sale of mostly virtual goods on Zynga, the social games developer, makes up the rest. But Facebook is widely thought to have other channels to make money. Its crown jewel is what its users share about themselves, including who they are, where they went to school, pictures of their children, political predilections and what they read and listen to.
Facebook has been aggressively experimenting with how to exploit all this data for its advertising efforts. It is testing how to sell advertisements elsewhere on the Web. And through its newest advertising tool, Facebook Exchange, it is tracks the behavior of Facebook users when they are visiting other sites and then serves up tailored advertisements when they return to Facebook.
On the mobile newsfeed, Facebook is displaying what it calls Sponsored Stories, which turns the brands that users “like” into product endorsement ads seen by their Facebook friends.
There are some indications that the Sponsored Stories experiment is bearing fruit. One digital agency, AdParlor, which creates advertisements on Facebook, said this week that users were clicking on more Sponsored Stories when they appeared on their mobile newsfeeds than on their desktops.
But Sponsored Stories is also at the center of a legal dispute. In a pending settlement of a class-action lawsuit, Facebook has agreed to make potentially costly changes to how these advertisements work.
The company has been aggressive in obtaining tools and talent to address its mobile challenge. In recent weeks it acquired a range of start-ups, including Glancee, a location sharing app whose creators are based in San Francisco; Face.com, an Israeli facial recognition technology company; and a Canadian application developer, Acrylic Software.
Facebook was created in 2004 by Mark Zuckerberg and several fellow Harvard University students initially as a social network for college students, and Mr. Zuckerberg was staunchly resistant to cluttering the site with advertisements early on. He also held off on taking his company public for as long as possible.
Brian Wieser, an analyst with Pivotal Research Group, said Facebook is such a new kind of company that it is difficult to know how to measure its progress. He was bullish on the company’s prospects, though, and predicted growth rates of over 30 percent during this quarter.
“It is not a utility, it is not a newspaper, it’s not manufacturing,” he said. “It is unproven in terms of its durability.”
This article has been revised to reflect the following correction:
Correction: July 26, 2012
Because of an editing error, an earlier version of this article published online misidentified the California city where Facebook is based. It is Menlo Park, not Palo Alto.
Although the company’s revenue grew a bit beyond analysts’ expectations, user growth inched up only slightly.
The company reported a net loss of $157 million, or 8 cents a share, compared with net income of $240 million, or 11 cents a share, for the same quarter last year.
On an adjusted basis, the company reported a per-share profit of 12 cents, or $295 million.
Revenue climbed to $1.18 billion, from $885 million; most of it came from advertising.
The company did not break out how much of that advertising revenue came from the mobile platform. Increasing revenue from mobile devices — the gateway to Facebook for more than half of all users — is the company’s most pressing challenge.
Analysts predicted revenue of $1.15 billion for the quarter, an increase of 28 percent, according to a survey by Thomson Reuters last week. Last year in the same period, Facebook’s revenue nearly doubled.
The user base inched up, to 955 million total users worldwide from the 901 million reported in April.
Since going public two months ago, Facebook shares have lost a third of their value from the initial $38 per share. The stock tumbled a steep 8 percent to $26.84 in regular trading on Thursday, after one of its most important partners, the social gaming company called Zynga, posted poor results in its earnings report on Wednesday. After Facebook’s own numbers came out Thursday, its shares dropped 10 percent further in after-hours trading, to about $24.
“With unprecedented hype around company’s I.P.O., some investors believe more upside would have materialized — higher revenues, higher earnings,” said Jordan Rohan, an analyst with Stifel Nicolaus.
Analysts had said in the days leading up to the earnings report that they did not expect Facebook to continue to draw new users, as they have for several years, like moths to a flame. Facebook already has nearly a billion users worldwide, which inevitably means user growth would slow down.
More important, analysts said, was whether Facebook can keep its users engaged on the site for longer stretches of time and profit from them by offering targeted advertisements, particularly on mobile devices.
“Before they were a public company Facebook was judged by growth in users,” said Colin Sebastian, an analyst at R.W. Baird. “Now that they are so well penetrated in most Western markets, growth has to translate into monetization.”
Of particular concern, said Citibank analyst Mark Mahaney, is whether users are spending as much time on the site every day, considering how many more advertisements they are seeing on both mobile and desktop platforms. That question is certainly expected to come up in the earnings call. “Could you see users using it less?” Mr. Mahaney wondered. Facebook, which is based in Menlo Park, Calif., faces high expectations on Wall Street, given its meteoric rise and its $104 billion valuation during its initial public offering in May. But it still has some room to prove itself.
At its debut on Wall Street in May, the company traded at $38 a share. After a rocky opening, shares fell, plummeting to a low of $25 at one point. It recent weeks, they have held at just under $30.
Investors were not expecting to see rosy earnings during this quarter, analysts said. Several said that the company would enjoy a grace period of sorts until early 2013 at least, but that it needs to lay out a clear road map to growing profits.
“Every time you have a high valuation it raises the bar,” said Aaron Kessler, an analyst at Raymond James. “They have some room, a few months, to show their improved monetization.”
Advertising is Facebook’s principal moneymaker; the sale of mostly virtual goods on Zynga, the social games developer, makes up the rest. But Facebook is widely thought to have other channels to make money. Its crown jewel is what its users share about themselves, including who they are, where they went to school, pictures of their children, political predilections and what they read and listen to.
Facebook has been aggressively experimenting with how to exploit all this data for its advertising efforts. It is testing how to sell advertisements elsewhere on the Web. And through its newest advertising tool, Facebook Exchange, it is tracks the behavior of Facebook users when they are visiting other sites and then serves up tailored advertisements when they return to Facebook.
On the mobile newsfeed, Facebook is displaying what it calls Sponsored Stories, which turns the brands that users “like” into product endorsement ads seen by their Facebook friends.
There are some indications that the Sponsored Stories experiment is bearing fruit. One digital agency, AdParlor, which creates advertisements on Facebook, said this week that users were clicking on more Sponsored Stories when they appeared on their mobile newsfeeds than on their desktops.
But Sponsored Stories is also at the center of a legal dispute. In a pending settlement of a class-action lawsuit, Facebook has agreed to make potentially costly changes to how these advertisements work.
The company has been aggressive in obtaining tools and talent to address its mobile challenge. In recent weeks it acquired a range of start-ups, including Glancee, a location sharing app whose creators are based in San Francisco; Face.com, an Israeli facial recognition technology company; and a Canadian application developer, Acrylic Software.
Facebook was created in 2004 by Mark Zuckerberg and several fellow Harvard University students initially as a social network for college students, and Mr. Zuckerberg was staunchly resistant to cluttering the site with advertisements early on. He also held off on taking his company public for as long as possible.
Brian Wieser, an analyst with Pivotal Research Group, said Facebook is such a new kind of company that it is difficult to know how to measure its progress. He was bullish on the company’s prospects, though, and predicted growth rates of over 30 percent during this quarter.
“It is not a utility, it is not a newspaper, it’s not manufacturing,” he said. “It is unproven in terms of its durability.”
This article has been revised to reflect the following correction:
Correction: July 26, 2012
Because of an editing error, an earlier version of this article published online misidentified the California city where Facebook is based. It is Menlo Park, not Palo Alto.