Monday, July 30, 2012

Facebook Stock Hit Hard Following Second Quarter Financial Report

It has been a rough ride for Facebook since the social media giant launched their IPO with disastrous results. The company's stock has been on a wild ride over the past few months almost consistently remaining in the red. The stock, which debuted at $38 per share when it went public, once reached as high as $45 per share before the tumble began. It is now down to just over $23, a slight nudge up from it's all time low at $22.28.

The most recently decline comes despite the fact that Facebook's revenue grew 32 percent in Q2, according to a report in The Washington Post. Facebook’s second-quarter results met Wall Street’s expectations, however it doesn't seem to be all wine and roses.

Profits have been showing signs of slowing, and Facebook's membership hasn't grown as quickly as investors would like, which is worrisome in terms of long-term growth potential. Investors were also concerned that revenue growth has slowed overall, at least compared to a few quarters ago when revenue more than doubled.

Facebook was initially valued at $104 billion when it went public two months ago. That means investors placed a higher value on its stock than established companies such as McDonald’s, Pepsi and even Amazon.With Facebook’s stock hitting a new low on Friday, the company lost as much as 39 percent of its value. It’s now around $66 billion.

Even though Facebook is closing in on 1 billion users the question still remains how is the site prepared to monetize those users and can they sustain the growth, or even keep a strong user base. On the earnings call with analysts, Chief Operating Officer Sheryl Sandberg said: "We are still in the early days of building our monetization engine."

That engine is revving up in mobile, CEO Mark Zuckerberg said. He expects 5 billion people will own smartphones over the next four or five years, creating even more opportunity for "sharing and connecting" on Facebook. Zuckerberg says Facebook has already seen good results from mobile ads and the company has been making strides with acquisitions such as Instagram.

Still investors are growing impatient and the company will need to make great strides to keep their confidence.

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