July 26, 2012

Facebook earnings: Good, but not good enough

Facebook didn't give investors much reason to cheer even though the social network beat analysts' revenues expectations in its first report as a publicly traded company. Profits were merely in line with forecasts.

Shares of Facebook fell more than 3% in after hours trading following the release of its second quarter results. By the close of trading Thursday, Facebook shares were still down nearly 28% from the company's initial public offering price.

Facebook generated $1.18 billion in second quarter revenues, up 32% from a year ago.

And while Facebook reported a net loss of $157 million due mainly to compensation expenses tied to stock-based compensation following the IPO, the company did generate a profit of 12 cents per share when excluding those costs.

Analysts were expecting sales of $1.15 billion and earnings (backing out the compensation charges) of 12 cents per share.

CEO Mark Zuckerberg highlighted the company's investment in research and development in a press release.

"Our goal is to help every person stay connected and every product they use be a great social experience," said Zuckerberg in the release. "That's why we're so focused on investing in our priorities of mobile, platform and social ads to help people have these experiences with their friends."

Since Facebook debuted on May 18, there have been many doubts about the company's ability to find new ways to generate more revenue from its roughly 900 million users. There are also increasing concerns about competition from Google and others.

Investors grew more nervous about Facebook's results Wednesday night, after social gaming company Zynga, a source of 15% of Facebook's first quarter revenues, reported earnings that missed forecasts and lowered its outlook. Zynga's stock plunged nearly 40% Thursday and Facebook fell more than 8%.

It's been a rough few months for the most hyped social media companies. Shares of Pandora and Groupon are down 41% and 67% since their IPOs.

But LinkedIn, which preceded the others to the public markets, is one of the few social media companies that has been a hit on Wall Street. LinkedIn's stock has more than doubled since its IPO in May 2011.

Meanwhile, Apple's results this week gave investors another reason to question whether even the best technology companies are starting to feel the effects of a sluggish global economy. Apple's earnings missed forecasts and the iPhone and iPad maker also issued guidance that was lower than expected.

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