Plunge in Facebook stock value highlights fears about growth - The Desert Sun

Facebook's ongoing pains as a newly public company continued Friday as shares dropped to a new low following signs the company's growth is slowing.

Shares of the No. 1 social-networking company ended the day down $3.14, or 11.7 percent, to $23.70, which not only notched a new low but also marked a nearly 40 percent decline from the company's initial public offering price.

The stock price's vicious downdraft, despite the fact the company is earning a profit and increasing its customer base, highlights the “disconnect between the stock and the company,” said John Fitzgibbon of IPOScoop.com.

Given Facebook's stature in the emerging field of social networking, investors expect more. Additionally, investors fear that the rise of mobile as a point of access for Facebook users will likely continue to be less profitable than the Web for the company, creating a possible further drag on revenue and profits in the future.

Shares suffered following the company's first earnings report as a public company late Thursday, which showed a dramatic slowdown in revenue growth year over year, despite meeting official Wall Street estimates on profits.

Revenue grew 32 percent in the second quarter, down from the nearly 45 percent growth in the first quarter. Meanwhile, costs during the second quarter jumped 295 percent. But its user base continues to grow, up 29 percent from a year ago to 955 million active monthly users as of June 30.

The falling value of Facebook shares could trigger more questions about CEO and founder Mark Zuckerberg's leadership and vision of the company's long-term course. But Arvind Bhatia, an analyst at Sterne Agee, says Facebook's mobile future is just starting to unfold, and few doubt Zuckerberg's standing as the one to lead charge.

“The stock has not been performing and people have a tendency to call leadership into question,” he said. “But I don't get the sense that people are questioning his vision. People are looking for some place to blame. A few on Wall Street had been vocal about it. It'd be scary for investors if Zuckerberg was out of the picture.”

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Bhatia added that investors are more concerned about the company's immediate direction and are seeking better communication.

“What we are talking about are issues that will take a little bit of time to figure out. But in the long term, ad dollars have followed eyeballs,” he said.

Investors also were spooked by the rate of slowdown in its revenue, which registered “only” a 32 percent jump from a year ago vs. a pace of 45 percent in the first quarter. While few expected the company to maintain the triple-digit rate of growth it once had, the year-over-year slowdown rate detailed in its first earnings call as a public company â€" coupled with its lack of clarity on how it would seize more mobile ad sales â€" is convincing investors to jump ship and sell, analysts say.

Facebook relies mostly on advertising, which accounts for 84 percent of its total revenue. Its ad sales grew 28 percent in the latest quarter to $992 million. But the disconnect between its revenue source of traditional online advertising and the changing consumer behavior toward mobile preferences continues to rattle investors and Facebook executives. More than half of Facebook users click on their phone to access their account.

Facebook said as much â€" that the mobile user base is growing faster than its mobile ads â€" in an attempt to temper analysts' expectations for continued sales growth. But the company's cautionary tone has largely failed to register among investors who seek unabated growth from new IPOs.