What does Wall Street think about Facebooks first Quarter Earnings Report

The Facebook, Inc. initial public offering (IPO) was troublesome enough to call the whole issue of IPOs into question. The world’s most successful social networking site has now reported less than stellar first quarter earnings results. The IPO started with a $38 offering price which quickly sank to $25.52 and has now hit a low of 39% below the IPO price, according to Timesleader.

Revenue grew 32 percent in the first quarter, but growth was disappointing.The company also increased spending on hiring and technology, which drove up expenses. 84 percent of Facebook’s revenue comes from advertising and the rest comes from payments and other fees associated with games and applications.

What do investors think of this? The problem actually started with inflated analyst expectations. When the expectations were lowered, Facebook exceeded them by a small amount. The Mercury News points out that investing analysts want to see growth in revenue combined with controls over spending. As for spending, a one time cost of $1.3 billion took Facebook into the loss column by $157 million. Capital spending went up 213 percent to $413 million.

Investors also look for growth in users, something that may be a useless measure when much of the available user market has been exploited or when there is competition in specialty areas. Facebook users will also use Google +, Twitter and/or Pinterest instead of staying exclusively at Facebook. It is also important to see growth in revenue from the ads and from applications fees. 

It might be time for the entire investment world to stop pushing growth for no better reason than its own sake, and to get smarter about other tech services indicators like sound and steady revenue from savvy advertising schemes, keeping up with technology by hiring and making capital investment, and maximizing existing customer satisfaction.

At least one analyst, Colin Sebastian of Baird, sees the stock as an “out performer” because Facebook has gotten increased revenue from advertising and from paid services related to the site’s applications. More users are accessing Facebook apps from tablets and smartphones, and it appears that mobile account holders have become more willing to use Facebook. The wide array of mobile operating systems requires more capital investment, but will reap more revenue from mobile advertising and application use. Add in the increased revenue from new mobile users in developing countries, and the picture may not be as dismal.  

Citi analyst Mark Mahaney says that the results are neutral, neither encouraging nor discouraging. He looked at user engagement and making money from mobile user markets. Facebook was once known for attracting huge numbers of users, but getting a tiny proportion of them to actually do anything with their accounts. This is not such a problem anymore, given the growing number of ways that users can interact with Facebook from linked sites and mobile devices. New features, like “Timeline” and shared music are making Facebook a favorite for people who want to play games and interact with family and friends. 

WebProNews thinks that upstart competitor, Google + is doing fine on a global basis. In June, Google + had over 110 million unique visitors, which represented a 66 percent growth rate. Google + now has 250 million accounts, 150 million monthly users and 75 million daily users, Google + has become very attractive to science, arts, professional and student users who are not always interested in the fun and games of social networking. Google can also integrate Google + into its dominating search service, which may siphon off a few more Facebook users.