(By Mani) Shares of Facebook, Inc. (NASDAQ:FB) fell to all-time lows after its second-quarter earnings report failed to give a clue to investors where the social networking giant is heading as it didn't provide any future outlook nor it provided any strong signs of monetizing mobile advertisements.
Facebook shares gapped open Friday at $23.21 after closing Thursday's regular trading session at $26.84. Soon after, it plunged to a new low of $22.28, a 41 percent discount from its IPO price of $38 and 17 percent fall from Thursday's closing price. Shares of Facebook have dropped 40 percent since it began its Nasdaq debut on May 18.
For the second quarter, the company's earnings were in line with estimates and revenue topped Street view of $1.15 billion. On a non-GAAP basis, Facebook earned $295 million, or 12 cents a share, flat with last year and reported GAAP loss of $157 million, or 8 cents a share, compared with a profit of 11 cents a share, last year. Revenues grew 32 percent to $1.18 billion.
Though, revenue increased from last year, the growth slowed down from 45 percent in the first quarter of 2012 and 55 percent in the fourth quarter of 2011.
"To justify the stock price of $25, Facebook should be growing revenues in access to 150% y-y - and management is totally clueless how to grow revenues in excess of 150%," Global Equities Research analyst Trip Chowdhry wrote in a note to clients.
Additionally, the company provided commentary suggesting higher third quarter expenses. Second quarter costs and expenses were $1.93 billion, an increase of 295 percent from the second quarter of 2011, driven primarily by share-based compensation expense.
However, the full-year expense estimates remain largely unchanged, and Facebook is using expenses as an earnings buffer.
Due to expense growth, GAAP operating margin was negative 63 percent, compared to 45 percent last year. Excluding share-based compensation and related payroll tax expenses, non-GAAP operating margin fell to 43 percent from 53 percent for the second quarter of 2011. Consequently, a drop in non-GAAP margins suggest that the company is not growing its revenues according to the level of expenses.
Meanwhile, investor concerns on mobile monetization still remains unresolved. Facebook is yet to monetize its surging user base on tablets and smartphones and said its daily active users (DAUs) increasing more rapidly than the increase in number of ads delivered.
As of June 30, Facebook has monthly active users (MAUs) of 955 million as of June 30, 2012, an increase of 29 percent year-over-year, and Mobile MAUs increased 67 percent to 543 million. Daily active users (DAUs) grew 32 percent 552 million on average for June 2012.
Facebook has launched several new mobile products, including a new Facebook Camera app for iPhone, an improved version of the mobile messenger app for both iOS and Android, and several updates to the Facebook Android app.
It also unveiled global App Center where users can discover relevant apps for mobile and web, expanded the rollout of Sponsored Stories in News Feed and enabled advertisers to buy Sponsored Stories in mobile News Feed.
Facebook said that 70 percent of campaigns resulted in a return on ad spend of 3 times or better, and 49 percent of campaigns showed a return on ad spend of 5 times or better. Chief Executive believes that Mobile is a huge opportunity for Facebook and sees 4 billion or 5 billion people to have smartphones over the next five years.
Meanwhile, the introduction of a mobile ad unit could add a significant revenue stream. Sponsored Stories, which appear in the user‘s News Feed, have only recently been introduced and are still in the testing phase, but they are more targeted than early display efforts and also appear on mobile devices.
Until, Facebook develops an effective and salable strategy to display advertisements on its mobile application, it would bear the wrath of the investment community. Facebook competes with large, established companies such as Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT), while start-ups like Pinterest and Twitter compete for advertising, content, social games, and services.
Meanwhile, privacy restrictions could make it more difficult for Facebook to track user data, which would limit its effectiveness for advertisers.
All these concerns aggravated on investors minds, creating a havoc on shares.
"The lack of guidance and the well publicized shift to mobile is weighing on FB stock," said Oppenheimer analyst Jason Helfstein in a client note. Helfstein has an "outperform' rating on the stock and is one of the 17 analysts who has a "strong buy" or "buy" rating on Facebook shares. Another 17 analysts recommend investors "hold" the stock, and two analysts have a "sell" rating on the shares.