Facebook Reports Net Loss After Bumpy IPO

Facebook reported a net loss for the second quarter in its first earnings report since a bumpy initial public offering. The company's share price has fallen sharply since the first day of trading. Audie Cornish speaks with Steve Henn.

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ROBERT SIEGEL, HOST:

Facebook reported earnings today for the first time since its bumpy initial public offering. Sales at the social media company came in slightly ahead of expectations, but that didn't stop the pummeling the company has been taking in the stock market. Facebook shares are falling in aftermarket trading.

NPR's Steve Henn joins us now to talk about Facebook's first turn in the public spotlight. And, Steve, tell us more about how Facebook did during its first three months as a public company.

STEVE HENN, BYLINE: Well, as you said, despite narrowly beating many analysts' expectations in terms of revenue, Facebook is still having a hard time making friends on Wall Street. After today's earnings hit the wires, Facebook's stock dropped sharply, falling to a new all-time low.

Due to onetime changes, Facebook actually recorded a loss last quarter, but that's not what spooked investors. That was expected. That loss was caused by onetime charges related to stock options and employee compensation. If you back those out, Facebook would have made 28 percent more money this quarter than it did the same time last year.

Now, usually, when a company is growing that fast, Wall Street loves this, but in this case, it's a bit of a disappointment. Facebook is not growing as quickly as it was before its IPO, and it's spending more money on investments, and those two things have scared investors.

SIEGEL: Well, Steve, at the beginning of this year, Facebook wasn't making any money at all in its mobile phone ads. Has that changed?-

HENN: Yes. Facebook introduced mobile ads shortly before it went public. And today, everyone is curious to see how those ads are doing. On a conference call, Mark Zuckerberg, Facebook's CEO, said mobile advertising was growing quickly and demonstrated early success. Later, Sheryl Sandberg, the company's number two, said mobile ads were already generating a half million dollars a day in revenue.

SIEGEL: Well, when you do better than expectations and your stock gets pummeled, you have to wonder were there signs ahead of today's report that investors were nervous?

HENN: Yeah, there were. You know, a couple of Web tracking firms reported declining or flat Facebook use in the U.S. and in some of the wealthier countries around the world. Remember, before Facebook went public and it was valued more than $100 billion, investors were betting Facebook would continue to grow at that kind of rapid rate for years. The problem is when you have 900 million members or 950 million members, you can't add customers as quickly as you could, and the ones that Facebook is adding tend to come from countries that aren't as wealthy.

So to grow, Facebook is going to have to sell more ads to the customers it has and more valuable ads. It's doing that. That was one of the few bright spots in that report today. It sold $992 million in ads.

SIEGEL: Would you say they're just...

HENN: That's a big jump.

SIEGEL: ...they're just running out of planets is what you're...

HENN: Yeah, basically. They're running out of wealthy people on this planet.

SIEGEL: Now, ads aren't the only way that Facebook makes profits. Hundreds of millions of people play games on Facebook. Company makes money from them too, no?

HENN: Yes, it does, but, again, even before today's report, there were serious signs that that part of the business is struggling. Zynga, which makes social games and is one of Facebook's most important business partners, reported a big unexpected loss last night. Zynga stock actually fell 40 percent today. It turns out many of Zynga's games, like FarmVille, are losing users, and Zynga is actually losing money. That matters for Facebook because close to 12 percent of its total revenue comes from customers who are buying credit to play games like these. And revenue in games this quarter was flat, so clearly, Facebook is going to continue to struggle to win over Wall Street and to calm investors.

SIEGEL: OK. Well, thank you, Steve.

HENN: It's my pleasure.

SIEGEL: NPR's Steve Henn talking to us about Facebook's first earnings report as a public company.

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