Facebook Stock Plummets After Earnings Announcement

Facebook was once flying high, but not right now.  The company’s stock took another nosedive today after earnings reports showed that the company’s growth was only a fraction of what analysts had expected.  The stock was down 14% in early trading, dropping to $22.98.  This is Facebook’s first earnings report as a publicly traded company and hasn’t gone over for them very well.

Most surprising was that in the earnings report, Facebook actually exceeded expectations that analysts had a week ago.  The problem for the company is that there had been so much bad news before this report that the stock was still coming out to be worth less than what it was worth even last week.

“They didn’t break any banks,” said Debra Aho Williamson, an analyst at research firm eMarketer. “They did not come out any better than anybody had expected.”

Between 2009 and 2010, Facebook’s revenue tripled.   The company now has revenues of $1.18 billion.   But companies with fresh IPOs are not supposed to have such a quick deceleration of earnings growth.  This let investors know  that Facebook’s IPO price of $38 had been entirely too high from the beginning.

Another thing that made investors upset with the company is that Facebook is refusing to give an assessment of its earnings for next year.  This creates additional uncertainty among investors, leading to further declines in the stock price.

Facebook was able to brag about having an increase in users.  The company is now at 955 million, which is a 29% jump from last year. Although the company has strong revenues, it is still not earning a profit.  Losses were at $157 million for the April-June period, compared with gains of $240 million one year ago.

“People are waiting for a really huge growth moment in revenue, advertising, dollars per user,” said Alex Ashby, research analyst at Global X Funds. “People had expected that Facebook is going to revolutionize advertising…we think it’s still a definite possibility, but maybe further down the road.”

 

 

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