Facebook stock tanks as some folks not impressed

Facebook. Something that did not exist when we started this business, Vestact. The markets gave the very first results as a listed company a big thumbs down. Unlike. The share price in after market trade sank nearly 11 percent, in normal trade the stock dropped 8.5 percent. Since listing the stock has lost nearly one third of their value. All looking rather patchy and the reason for the fall off prior to the results were weaker results and a patchier outlook from Zynga. The listing of Zynga has been, well, pretty darn awful. Zynga has lost two thirds of its value since listing in December last year. Print (a virtual print) an upside down smiley face for both, but a complete washout for Zynga.



Here we go, a first for the company: Facebook Reports Second Quarter 2012 Results. The opening statement from the chap who runs the business, rock star (in a nerdy way) and hoodie wearing CEO Mark Zuckerberg is quoted as saying: "Our goal is to help every person stay connected and every product they use be a great social experience". First question that anyone asks about this statement is that this is very nice, but how do you actually monetize that? Well, Zuckerberg continues: "That's why we're so focused on investing in our priorities of mobile, platform and social ads to help people have these experiences with their friends."


That still does not answer the question for anyone who is asking the serious questions, how does Facebook plan to make more money over the coming years? Serious money. More than they are making now of course. Because at current valuations (around 100 times earnings) it seems too much to pay for pedestrian (relative to earlier in their business cycle) growth at this stage, revenue growth of just 32 percent year on year is not enough. Advertising revenue, what I truly believe is the future of the business, represents 84 percent of the total, but there was quite a big jump in quarter on quarter advertising revenue growth, 28 percent. Phew. Without having done too much homework, the Zynga guidance then comes as no surprise. But their advertising revenue as a percentage of total sales is actually as low as it has ever been (to contradict myself a bit), as a direct result of an increasing cut of payments done of their website revenue.


It was a meet in earnings, but the lack of guidance was clearly a disappointment for investors. Even though the company tells us that daily and monthly user trends were sharply higher year on year and that mobile users were exploding. Which brings one to the future, the need for the company to increase advertising revenue on their mobile platform. This is something that Facebook have been struggling with, and the people who cover the stock even more so.


There are new methods of monetizing their product that have come out of these results, sponsored stories. Now if you are a user and a real junkie, you know what I am talking about. I try and use the platform, but it is tough to keep up to date, but exceedingly easy to use. My conclusion is going to be lame again. I back the team, I back the product, I believe that they will monetize the base in ways yet known to us. They will become apparent. The risks you face being a shareholder in this business is that someone else invents something more amazing, and then you have the problems that Microsoft have now. Although Facebook are still in their toddler stage, in terms of their business life relative to the grown up but still young Microsoft. Either you have a genius here, or you have a child that might just blend in. And nobody likes ordinary. I think that profiling of 20 to 25 year olds patterns on Facebook will be key to future revenues. I shall do my own homework.