Facebook reported earnings Thursday that met expectations but failed to convince investors that the social network had found a business model that would make it an enduring powerhouse.
That sobering realization was reflected in a massive sell-off of the company’s stock. After its second-quarter performance was unveiled, shares plunged 11 percent, reaching their lowest point since the company’s initial public offering in May. Other companies that rely on Facebook’s platform for sales also saw their stocks fall.
Even though Facebook’s revenue grew $1.18 billion, slightly above expectations, investors were alarmed that the company spent more than three times what it had during the same period last year yet expanded its business at a slower pace.
On a conference call, chief executive Mark Zuckerberg and other executives focused on the company’s ongoing struggle to become a mobile advertising giant. Mobile customers grew at more than three times the rate of desktop users, and the company’s future growth in emerging markets will largely come from such users, they said.
Facebook currently makes most of its money from display ads viewed on desktop computers or laptops.
“Our vision for platform is bigger than most people perceive,” Zuckerberg said. “I think we’re really much closer to the beginning here than the end in terms of what we can do.”
Executives said they would slowly increase the number of advertisements that appear in users’ news feeds, to gauge how its users feel about the mix.
But analysts said that could draw the ire of Facebook’s 955 million users and questioned whether they would accept more advertisements, particularly on smaller mobile screens.
The company is a bellwether of the social media industry, and its struggles have let much air out of businesses that offer social online coupons, interactive games and streaming radio services. And some question if those services — as well as Facebook itself — will be passing fads.
It’s a notion Facebook executives reject, pointing to solid growth rates.
Zuckerberg said people spent more time than ever on the site and noted that Facebook is the most popular app on mobile phones.
He declined to talk about future products but quashed rumors that the company will build its own mobile phone. Instead, he said the company’s future lies in apps partners who build on its platform, such as Zynga. But those partners are also stumbling, with Zynga reporting a $22.8 million loss for the quarter on Wednesday.
Facebook declined to provide any forecasts for the next quarter on the call, saying that it’s difficult to forecast what will happen next.
The lack of guidance spooked some investors, but analysts say that Facebook’s continued user growth still makes it the company to watch.
For the second quarter, Facebook posted a loss of $157 million, or 8 cents a share, compared with a profit of $240 million, or 11 cents a share, during the same period last year. Excluding stock-based compensation and other items, earnings were flat at 12 cents a share, in line with expectations.
Overall, Facebook lost $743 million on operations spending, for a 63 percent loss. The company has $10.2 billion in cash and investments on its balance sheet.
Revenue from advertising was $992 million, a 28 percent gain over last year. Facebook did not break out its mobile advertising figures but said it made at least $500,000 a day from mobile ads, the equivalent of about 4 percent of all revenue.
Cecilia Kang and Hayley Tsukayama are financial writers for The Washington Post.