Sometimes it seems like everybody on Wall Street wants Facebook to fail as a public company. After the company’s meteoric rise from a dorm room vanity project to a $104 billion company in just eight years, it seemed like nothing could stop Facebook from tearing down the gates at Nasdaq and doubling its stock price overnight. That didn’t happen. In fact, the company lost about $35 billion in the days after its IPO. And now, on the day of its first ever earnings report, Facebook stock is taking yet another nose dive, dropping 16 percent in early trading on Friday. Why? Because the social network has become terribly mediocre.
It’s not so much that Facebook’s second quarter earnings were bad. They pulled in $1.18 billion in revenue, a 32 percent increase over this time last year, and posted a lost of $157 million, largely due to “share-based compensation expense” as a result of the IPO. This is about what analysts expected, and that’s the problem. All in all, the most hotly anticipated company to go public this decade (so far) has been painfully underwhelming. “Revenues look adequate but not spectacular, growth is solid but not massive, and advertising looked in line,” Brian Blau, an analyst with Gartner Research, told Ars Technica. “Maybe in there somewhere is a hint that overall growth has slowed somewhat, but it’s hard to tease that out of the pure financial figures without understanding more about actual user engagement.” In other words, meh.
Facebook’s biggest problem, everyone seems to agree, is that it’s just not growing like it used to. This goes both for revenue figures and for users. Revenue-wise, Facebook’s fallen a long ways from last year when it seemed to be doubling it’s revenue every quarter. Ditto for its monthly active users count. In one regard, this is because everybody’s already on Facebook. The company revealed in its earnings report that its now 955 million monthly active users strong, up from 905 million last quarter. As it plateaus, the company has to figure out new ways to bring in cash besides just advertising which currently makes up 84 percent of its revenue, and even Facebook’s own whiz kids know that they need to diversify their revenue streams to keep up with the rapidly changing market.
Facebook’s biggest hope, everyone also seems to agree, is in the mobile arena. On the earnings call, Mark Zuckerberg and Sheryl Sandberg drove the point home that they would be doubling down on mobile, investing in improving their apps and coming up with new products. Indeed, the company did see some healthy growth on the mobile front with 543 million monthly active users, a 67 percent increase. On in its quarterly earnings report, the highlights were pretty much all about mobile. It’s also worth pointing out that Facebook’s $1 billion acquisition of Instagram is still pending, so they haven’t begun to reap the benefits of that.
This is where we have to wonder what Facebook’s flatlining means with regards to the supposed social media bubble hanging over Silicon Valley right now. Well, it’s not looking good. On Thursday, Zynga, the other massive social media company to go public in the past year, released its second quarter earnings report, and the reaction was nothing short of catastrophic. Coming up short on revenue and posting a $22.8 million loss, the company’s stock plummeted nearly 40 percent, pulling Facebook’s stock down with it 5 percent. All things told, Zynga’s stock price is down 69 percent since it went public in December. Groupon is similarly down 66 percent since its November IPO. Facebook is down 26 percent and falling.
This doesn’t mean that Facebook is over. The mobile strategy could work, and it could be a late bloomer on Wall Street. However, it’s definitely not the magical success machine it used to be. Then again, it’s a new kind of beast, a different kind of company than we’ve seen before. As analyst Brian Wieser told The New York Times, “It is not a utility, it is not a newspaper, it’s not manufacturing. It is unproven in terms of its durability.”