Facebook Tail Spin – The hard take!
Facebook’s shares continue to tumble under the weight of its own expectations. Facebook’s mid May 2012 IPO was pegged at $100bn and with growth stalling, the m-cap is a downward spiral. I had written about the extremely stretched multiples which make Facebook’s share price unsustainable.
Facebook’s share price is down 47% in 3 months after the IPO. In its earnings call for the quarter, Facebook Inc reported a drastic slowdown in revenue growth and offered no financial forecasts to ease worries over the prospects for boosting advertising in its first earnings report as a public company, sending its shares to a record low.
While Facebook has pointed to early signs of success in new advertising services, but the lack of a detailed financial outlook went over poorly with investors hoping for evidence that the company could soon reverse the continuing slowdown in its business. Facebook posted a net loss of $157 million, or 8 cents a share, in the second quarter after taking hefty stock compensation charges related to its IPO. That compared to net income of $240 million, or 11 cents, in the year-ago quarter.
Facebook has raced through eight years of break-neck growth that was to have culminated with its May initial public offering. Instead, its share price has headed south as investors questioned its valuation of more than 100 times earnings and its longer-term ability to sustain growth as users migrate to mobile devices.
Monthly active users grew to 955 million at the end of the second quarter, up from 901 million at the end of March. But mobile monthly active users surged 67 percent year-on-year to 543 million users, adding further pressure on Facebook’s business, which only recently began to offer limited forms of mobile advertising.
While advertising “impressions” lagged user growth during the second quarter but that new social ads, which appear directly in Facebook users’ “newsfeeds”, were driving up ad rates. The average price of a Facebook ad increased 9 percent during the quarter, driven primarily by the United States where rates jumped 20 percent with the company’s newly released social ads.
In effect, facebook’s slow down is a study of failing under the high growth expectation set by the blistering pace of growth registered earlier. However what seems to pinch the investors is a stretched valuation of $100billion when the new advertising avenues have not fully driving the revenue growth engines