Ending a tumultuous day for social media companies, Facebook posted a loss Thursday in its first test as a public company.
Investors fled the social-networking giant in after-hours trading following a quarterly loss of $157 million, which included one-time charges related to the accounting of stock awards disclosed amid the botched initial public offering on May 18.
The social-networking giant, which went public in May with an eye-popping high valuation, reported on an adjusted basis a profit of $295 million, or 12 cents a share, on revenue of $1.18 billion for its second fiscal quarter. That met the consensus estimate for the quarter.
The company's stock plunged 11% in after-hours trading to $23.77 after losing nearly as much during the day's trading session. And the stocks of other social media companies slumped further, among them Zynga, Groupon and LinkedIn . The stocks had fallen during regular trading, even as the broad market rallied. Zynga had released disappointing earnings Tuesday after the close of regular trading, giving investors pause.
Meanwhile, a problem at Twitter's data centers took the micro-blogging site offline for several hours, affecting millions of its users. Google Chat also crashed.
The stakes could not be higher for social-networking giant after its much-anticipated IPO fizzled amid questions about its online and mobile advertising business. Its initial valuation of $100 billion is now $60 billion.
There was some good news. The social-networking giant's revenue of $1.18 billion for its second fiscal quarter compared to consensus estimates of $1.15 billion.
It was the first quarterly report for Facebook as a public company. It's unusual for a company to miss estimates on its first quarter as a public company, says Jay Ritter, professor of finance at the University of Florida. When companies go public, they typically have a solid outlook at least for the first few months.
Seeing Facebook's earnings coming in roughly in line with expectations was a disappointment for investors who have been hoping for more, says Jordan Rohan of Stifel Nicolaus. "Investors still hung to the hope that Facebook would rise to the occasion," he says.
Investors response to Facebook's report shows just how jaded Internet investors have become, he says. "It takes a particularly special performance for a stock to go up on its earnings," he says. "That's the rhythm of this quarter earnings period."
Facebook had warned investors that the quarter wasn't going to be a stellar one, by updating the risk section of its prospectus, Rohan says. "A company wouldn't do that unless the results were going to be uninspiring," he says.
Rohan continues to rate the stock a "hold." "This quarter's fundamentals don't seem to change the story of the outlook," he says.
"They have to show they can justify" even that lower valuation, says Lucy Jacobs, chief operating officer of Spruce Media, a technology platform for social-media advertising. She said Facebook has made several changes to goose ad revenue.
Like nearly every business in social media and beyond, Facebook is betting a large portion of its future on mobile ads. Yet few companies, including Facebook, have been able to capitalize on the promise. The popularity of mobile devices comes, in part, from their lack of ads.
CEO Mark Zuckerberg said mobile is a huge opportunity on a conference call with analysts, but he downplayed a rumored mobile phone from Facebook, adding that it "wouldn't make much sense." There had been speculation prior to the call that Zuckerberg might skip the conference call.
The market for the ads that dot smartphone and tablet screens is expected to soar to $10.8 billion in U.S. sales by 2016, from an estimated $2.6 billion this year, says research firm eMarketer. That's a tiny slice of the $169.5 billion market for media ad spending in the U.S.
Google has the early lead in the U.S. in monetizing mobile, with 51% of the market, largely due to its success with mobile search ads, says Noah Elkin, an eMarketer analyst. Phone numbers embedded in mobile ads on Google's click-to-call feature, for example, generate about 15 million calls per month.
Facebook barely registers yet, though the company has the potential to rake in $2.54 billion from mobile advertising, according to researcher Chitika. Facebook Sponsored Stories — an ad form that appears on a member's Facebook page and generally consists of a friend's name, profile picture and an advertiser the person "likes" — now appear in a user's Facebook mobile news feed.
Debra Williamson, an analyst at eMarketer, says mobile is where it's at right now.
Until early this year, Facebook had no real mobile strategy, she says.
The company's challenges don't end there.
In the U.S., where Facebook makes most of its advertising revenue, the social network is not drawing new users. In May, 158.01 million unique visitors logged on to the network, compared with 158.69 million in April, according to market researcher comScore. Facebook says it has more than 955 million members worldwide.
Underwriters of Facebook's IPO lowered guidance in May, suggesting the company would earn about $4.8 billion for 2012 — a billion-dollar drop in confidence that fed market uncertainty about the effectiveness of Facebook's advertising machine.
Social-gaming leader Zynga's woeful results on Wednesday — it lost $22.8 million in its most recent quarter — underscored Facebook anxiety, since Facebook depends on Zynga for about 12% of revenue.
Zynga CEO Mark Pincus blamed some of its problems on changes Facebook made to its platform.