These are stories Report on Business is following Thursday, July 26, 2012.
Facebook Inc. stock plunged today in the wake of the social network's first earnings report as a public company, a report that failed to give shareholders what they were looking for.
It's now well below the $38 (U.S.) when the company went public in May.
As The Globe and Mail's Omar El Akkad and Iain Marlow write in today's Report on Business, investors had been hoping to see stronger growth in revenue, rather than the 32-per-cent posted by Facebook in the second quarter.
Facebook revenue climbed to $1.18-billion from $895-million a year earlier, marking the slowest growth since early last year, while ad revenue rose 28 per cent to $992-million, or 84 per cent of the total.
Facebook lost $157-million, or 8 cents a share, compared with a profit of $240-million or 11 cents a year earlier. Stripping out charges brought earnings per share to 12 cents. Its operating profit margin eroded to 43 per cent.
The number of active monthly users also climbed, by 29 per cent to 955 million.
Here's what some observers are saying:
"Investors are going to see sustained growth for the next little while. It's too early in the game to be driving 10-per-cent changes in the stock price." Michael Scissons, Syncapse
“A little bit of earnings guidance, a little bit of optimism about future performance would have been nice. Facebook trades at a premium to many companies, including Google, and is only growing at a slightly faster pace than companies like Google.” Jordan Rohan, Stifel Nicolaus & Co., to Bloomberg
“Before they were a public company, Facebook was judged by growth in users. Now that they are so well penetrated in most Western markets, growth has to translate into monetization.” Colin Sebastian, Robert W. Baird & Co., to The New York Times
“It has become a show-me story. The problem is deceleration, and there wasn’t anything from an outlook perspective that would indicate that is going to stop.” ,” Nabil Elsheshai, Thrivent Financial for Lutherans, to Bloomberg
“Facebook is in the early stages of an important transition in its advertising business that should drive accelerating growth and margin expansion over time.” Analysts at JPMorgan Securities
U.S. growth slows
American consumers are showing more signs of fatigue, evident in a report today that showed U.S. economic growth slowing to an annual pace of 1.5 per cent in the second quarter of the year.
That continues the trend of deceleration, according to the U.S. Commerce Department, down from 2 per cent in the first quarter of the year, and more than 4 per cent in the final three months of last year.
"We are a long way from the 4-per-cent growth that the Fed would like to see, and that the economy needs, to make good progress in bringing unemployment down," said chief economist Avery Shenfeld of CIBC World Markets.
Personal spending increased by 1.5 per cent, down from 2.4 per cent in the first quarter and marking the slowest rate in a year, while spending on big-ticket items like autos slipped 1 per cent.
"The deceleration in real GDP in the second quarter primarily reflected a deceleration in [personal consumption expenditures], an acceleration in imports, and decelerations in residential fixed investment and in nonresidential fixed investment that were partly offset by an upturn in private inventory investment, a smaller decrease in federal government spending, and an acceleration in exports ," the department said.
The morning after
Some of the optimism surrounding European Central Bank chief Mario Draghi's comments is fading as reality sets in.
The Germans like his promise to do what's needed to save the euro. But not so fast, according to what the Bundesbank is telling reporters today.
First, there's the issue of whether the central bank will indeed intervene in markets again to prop up the bonds of Spain and Italy, which could be setting investors up for disappointment when the ECB meets next week. Then there's the question of how much it could achieve to ease the debt crisis in the 17-member currency union if it in fact does.
"After yesterday's ... speech put a rocket under all sorts of risk assets, today is seeing the familiar pattern of wondering whether everyone got a little carried away with promises of doing anything to defend the euro," said chief market strategist David Jones of IG Index in London.
"There have been lots of occasions over the last couple of years where the initial euphoria following an upbeat speech has given markets hope - only to see this dashed as the actions prove to be a little bit harder to put in place."
Germany has opposed using the ECB to buy bonds, and shows little sign of changing its tune.
- Bundesbank still opposed to ECB bond buying
- Draghi to do 'whatever it takes' to safeguard the euro
- Spanish unemployment hits record high