After reporting its second-quarter loss on Thursday, Facebook Inc (NASDAQ:FB)’s stock fell 10 percent in after-hours trading and has continued its decline on Friday morning. Its shares are currently down 15.22 percent to $22.74.
In addition to its loss, the company’s operating margin in the second quarter was 43 percent as compared to the previous year’s 53 percent with a fourfold rise in sales and marketing expenses, reported Bloomberg. The company’s revenue increased at its slowest pace of 32 percent and its payments-related sales came in at $192 million–lower than analysts’ estimates of $199.3 million.
Chief Executive Officer Mark Zuckerberg did show up for the earnings conference call on Thursday and gave the opening remarks after the company did not issue any growth forecasts. At the end of the day, the young leader failed to reassure concerned investors that the company may be overvalued.
Ad sales have been a concern for shareholders and they had looked for Thursday’s earnings call to provide some assurances. While the social media giant continues adding users, it is doing so at quicker pace than it’s generating ad sales, said the company.
In May, Facebook Inc (NASDAQ:FB) said that sales growth was slower than user expansion as people were accessing the site via their mobile phones. For the second quarter, the number of U.S. ads delivered fell 2 percent while the number of daily users rose 10 percent, said the company’s Chief Financial Officer David Ebersman.
In the conference call, Ebersman said, “Ad impressions continued the recent trend of growing more slowly than users as more of our usage is on mobile devices. This trend is particularly true in markets such as the U.S., where smartphone use is expanding rapidly.”
Zuckerberg addressed that little mobile problem on Thursday and said it’s a key area for the company. He noted that mobile users comprise more than half of the site’s members; they are more active than those on the site from a desktop.
He said in the conference call via Bloomberg, “Mobile is a huge opportunity for Facebook. Our goal is to connect everyone in the world. And over the next five years, we expect 4 or 5 billion people to have smartphones. That’s more than twice as many people as have computers today.”
He added, “On average mobile users are around 20 percent more likely to use Facebook on any given day. So mobile not only gives us the potential to connect more people with our services and also gives us the ability to provide more value and more deeply engaging experience.”
There has been a glimmer of hope with the mobile ads. According to Bloomberg, AdParlor, which offers services for marketers, click-through rates are 15 times greater on mobile than on desktops but its pricing is 30 percent lower.
Chief Operating Officer Sheryl Sandberg expressed some optimism on mobile ads during the earnings call. She said with the success found from the company’s new services, in the future Facebook should increase its mobile and desktop advertising revenue. But it does need to work with companies on how to advertise on the site as it’s a new venue for marketers.
Using TV as an example, Sandberg said, “It took a long time for the TV market and advertising to be truly understood, it took a long time for search, and I think we’re still in that learning curve with a lot of our clients. If our ads work — and we continue to make our ads work and they work for advertisers and our users — we’ll be able to educate the market over time.”
In addition to the markets not responding positively to the earnings report and subsequent conference call, analysts weren’t overflowing with optimism either, especially with a lack of info for the company’s future.
Jordan Rohan, an analyst at Stifel Nicolaus & Co. said via Bloomberg, “A little bit of earnings guidance, a little bit of optimism about future performance would have been nice. Facebook trades at a premium to many companies, including Google, and is only growing at a slightly faster pace than companies like Google.”
Rohan has a “Hold” rating on Facebook.
Nabil Elsheshai, a senior equity research analyst at Thrivent Financial for Lutherans said of the company’s numbers,“It has become a show-me story. The problem is deceleration, and there wasn’t anything from an outlook perspective that would indicate that is going to stop.”