Facebook Takes Early Financial Hit, But Execs Believe In Recovery

Facebook’s first quarterly financial report since going public offered some good news and some bad news for the company. The good news? Facebook is continually gaining users, especially on mobile. The bad news? The company took a major financial hit in stock compensation after the post-initial public offering freefall. But the three executives on Thursday’s earnings call — Co-Founder and CEO Mark Zuckerberg, Chief Operating Officer Sheryl Sandberg, and Chief Financial Officer David Ebersman — are confident in Facebook’s future.

Facebook’s revenue in the second quarter rose by 32 percent compared with that time frame in 2011, as the company took in $1.18 billion. However, Facebook also had to pay out $1.3 billion in stock compensation after the value of the company dropped precipitously following the May 18 IPO. This made for a net loss of $157 million.

Today’s news did not help Facebook on Wall Street. The stock price plummeted from $29.34 at close on Wednesday to $26.84 at the end of the trading day Thursday. Many analysts also believe that the poor quarterly report by Facebook application developer Zynga may have hurt Zuckerberg’s company. Facebook’s stock opened May 18 at $38 per share.

Ebersman said Facebook is not overly concerned with its stock price at the moment, but is more focused on the quality of its products:

Obviously, we’re disappointed about how the stock has traded, but I think the important thing for us is to stay focused on the fact that we’re the same company now that we were before. We’ve got the same opportunity in front of us to build something really important and valuable over time, and if we stay focused on building great products, we expect and we want to be judged based on the quality of the experiences we build and the value we can create over the long term.

In the second quarter, Facebook made most of its money (84 percent) from advertising. The company took in $992 million in advertising revenue, representing a 28 percent increase from the second quarter of 2011. However, Ebersman noted that the number of ads delivered in the U.S. decreased 2 percent, despite a 10 percent increase in daily users.

Ebersman explained how Facebook plans to show more of a positive trend in the future:

Over the long term, we believe that we have a significant opportunity to increase CPMs (cost per impression). There are a number of potential drivers, including increasing the number of sponsored stories delivered in news feed across desktop and mobile, improvements in our ad products, including better targeting capabilities, increased advertising demand as we continue to demonstrate our ROI (return on investment) and as our clients get better at creating social and engaging apps, and overall growth and development of online ad markets globally.

Much of the earnings call dealt with how the company will turn a profit from its growing mobile membership. Facebook usage on mobile devices has skyrocketed, from 155 million monthly average mobile users two years ago to 543 million now. Users can expect to see more of a push for sponsored stories.

Zuckerberg said during the call that sponsored stories — where companies sponsor posts that show which friends have liked a certain brand — generate $1 million per day. Roughly one-half of that comes from mobile, he said. Sandberg said sponsored stories far outperformed ads on the side of the page, which have also increased steadily.

The company has also spent the second quarter trying to work with businesses to make it as easy as possible to advertise through Facebook.

Both Zuckerberg and Sandberg noted the importance of social ads. Studies show that users are more likely to interact with an ad if it’s promoted or shared by a friend. However, getting to that level of organic sharing is tricky for many advertisers. Sandberg called local social sharing, which is a necessary benefit for small and medium sized business, “the holy grail of the Internet.”

Zuckerberg talked about how key it is for Facebook to continue to develop its mobile presence (but don’t hold your breath for a Facebook phone) as an advertising vehicle:

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 billion or 5 billion people to have smartphones. That’s more than twice as many people that have computers today. Building great services for these devices is essential for us to help people connect. We also think that people are inherently social and having a device that’s with you wherever you are creates more opportunities for sharing and connecting.

Our sponsored stories, which we launched in mobile news feeds earlier this year, have grown quickly and demonstrated early success.

Readers: Do you think Facebook will be able to bounce back? If so, how long will it take?

Images courtesy of Facebook.

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