NEW YORK (Reuters Breakingviews) - Facebook (FB.O) has lost a few more friends with its first-time fizzle. The social network's revenue grew 32 percent from the same period last year in its inaugural earnings report as a public company. While such growth would look fantastic to a company selling toothpaste or beer, it's not spectacular for a company that was recently sold to investors as the hottest in tech. Worse, profit and margins took a hit even after ignoring stock compensation. Facebook is investing heavily, but investors counted on having cake and eating it. Instead, they're going hungry.
It's clear that Facebook has a mobile problem. The number of people checking up on their friends via a smartphone continues to rise sharply and is now well over 500 million. That's more than half of all users. This has the distinct advantage of allowing people onto the network more often because they don't have to be sitting in front of a computer. Unfortunately, the downside - so far - is larger. Advertisers haven't adjusted budgets to this shift, so they pay less per impression and click. The number of ads delivered in the United States per user on Facebook actually fell. And gaming payments have been flat for several quarters due to the growth of mobile, according to the company.
This is also an opportunity, though. Company executives reckon advertisers will eventually follow the public onto mobile. If so, margins will rise and Facebook will be sitting pretty. That's why the company is spending heavily, buying companies like Instagram - for which it shelled out $1 billion - hiring engineers and rolling out new forms of advertising like sponsored news articles.
Yet it's increasingly evident that the mobile switch - and the subsequent need to invest - means delayed and less certain payoffs to investors. No wonder they dumped shares, sending them down 10 percent after the results came out. They aren't interested in hanging around for profit growth of just 8 percent, like they saw in this past quarter. Yet even with the falling valuation, the firm is still worth more than eight times estimated 2012 revenue. Unless Facebook figures out mobile, and pronto, expect more famished disillusionment and more pain for the stock price.
- On July 26, Facebook reported revenue of $1.2 billion for the quarter ending June 30. That is a 32 percent rise from the same period last year. The company had a net loss of $157 million for the quarter.
- The social network had 955 million monthly active users at June 30, an increase of 29 percent over the past 12 months.
- The stock fell 10 percent in after-hours trading to $24 a share. Facebook's initial public offering took place on May 18 at $38 a share.
(Editing by Antony Currie and Martin Langfield)
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
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