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Facebook releases earnings


07-27-2012 11:35 BJT

The spotlight is on Facebook once again. The social networking site released its first earnings since becoming a publicly traded company on Thursday. Even though its revenue beat expectations, investors were not impressed. The stock continued to sell off after the earnings hit. 

It was one of the most anticipated earnings in the tech space in a long time and offered an opportunity for the company to give investors some confidence and get the stock back on track after being derailed by its fiasco of a public offering. While the company’s profits may have come in close to expectations it failed to encourage investors. 
Expectations were running high on Facebook's initial public offering. When its shares started trading on the NASDAQ in May most expected the price to soar but it did just the opposite and continued to slump for months making it one of the most disappointing high profile IPOs of the year. 

On Thursday the stock hit new lows of 26 dollars a share as the company handed in what is likely to be its most watched earnings report card ever. Facebook posted a net loss of 157 million US dollars on 1.18 billion dollars in sales - most of it coming from advertising.

While the results were in line with or better than expectations, revenue growth is slowing and investors were unconvinced Facebook had a strong enough strategy to increase ad revenue in the ever growing but largely untapped mobile space.

Tom Forte, Internet Analyst, Telsey Advisory Group, saying:“The challenge for any advertising based company - and this goes to Google and this goes to Facebook - is you’re seeing a transition in activity with a lot more volume on the mobile side but from a revenue standpoint or a monetization standpoint, the business models are still being developed on how to take advantage of this transition in audience.”
The stock was also hurt by disappointing earnings from gaming company Zynga which is a key partner of Facebook and was responsible for 12 percent of Facebook’s revenue last year.
Another disappointment - Facebook gave no guidance on future performance. 
Tom Forte, Internet Analyst, Telsey Advisory Group, saying:“Quarterly performance can fluctuate significantly both favorable and unfavorable. So there are times when companies choose to not provide guidance because they’re running the business for the long-term.”
On the positive, founder and CEO Mark Zuckerberg was on the earnings call which many saw as a crucial sign to show he takes investors seriously and Facebook continues to attract new active users - they now total 955 million US dollars - up from 901 million in the first quarter of this year. 
How the company will monetize those active users increasingly accessing the site via mobile - without turning them off by excessive advertising will be key to Facebook’s growth going forward.

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