FACEBOOK’s woes deepened last night as after-hours trading sunk shares in chief executive Mark Zuckerberg’s company to an all-time low after the social network’s earnings stagnated in its first quarter as a public company.
Shares fell 10 per cent to under $24 (£15.29) – 37 per cent down on its listing price – as income flatlined despite Facebook reporting rising sales and closing in on a billion users worldwide.
Investors bailed out as it became clear that as Facebook grows, it is struggling to sustain the margins that led to a $100bn valuation on the firm’s initial public offering (IPO) just two months ago.
The company reported a loss of $157m in the three months to July, Facebook’s first, due to compensation payments associated with the IPO. But even with figures adjusted to account for this one-off charge, profits were just $295m, barely up on last year despite continuing sales growth. Facebook’s revenue was $1.18bn, which surpassed analysts’ expectations and led to a brief after-hours rally on Wall Street before the extent of the company’s slowdown became clear.
As Facebook has invested in staff and infrastructure to support its rapid rise, its margins have shrunk dramatically, with the firm seeing lower ad sales in emerging markets compared with the West and failing to take advantage of users accessing the network on mobiles.
Since May’s disastrous IPO, which was plagued by technical problems and required underwriters to plough cash in to prevent shares losing value on their first day, Facebook’s share price has declined solidly, a trend that worsened yesterday even before the results were announced.
Gloom over the firm’s future was exacerbated by social gaming giant Zynga badly missing its own targets on Wednesday night and slumping 40 per cent. Including after-hours trading, Facebook shares fell by more than 17 per cent yesterday.
David Ebersman, the company’s chief financial officer said it was “disappointed” with how stock was trading but added that it was “the same company” as before the IPO.
Zuckerberg has already admitted that mobile is Facebook’s biggest challenge, a problem that was laid bare in an earnings call last night.
The company’s chief executive said yesterday that more than half of Facebook’s 955m users now access the site via their mobile phones, and Ebersman added that in Facebook’s most lucrative markets, the US and Europe, the number of adverts sold had fallen as a result.
Facebook has recently moved into mobile adverts with the introduction of “sponsored stories”, a new type of advert that is placed in the user’s news feed instead of the side of the page and is thus more suited to mobiles.
Sheryl Sandberg, Facebook’s chief operating officer, said the company is now making $1m a day from sponsored stories.
Zuckerberg added last night that Facebook making its own phone “wouldn’t make that much sense for us to do,” despite rumours of a tie-up with Taiwanese manufacturer HTC.