Facebook’s first public results show it still has a mountain to climb

27 Jul 2012

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Facebook CEO Mark Zuckerberg

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In eight years, Facebook has amassed an audience of 955m monthly active users around the world and last night posted revenues of US$1.1bn – an amazing achievement. However, under the forensic spotlight of Wall Street it is now at the mercy of investor sentiment and whether investors judge it’s growing fast enough.

Rather than making profits at this stage, Facebook is making losses of US$743m from operations and a net loss overall of US$157m.

The milestone of 955m monthly active users – up 29pc year on year – indicates that overall Facebook has almost one-seventh of the world’s population using its site every month.

Daily active users stood at 552m at the end of June, up 32pc year on year, while mobile active users jumped an incredible 67pc to 543m users. Again, no mean feat.

Growth slowing?

But unfortunately the consensus is that Facebook’s growth is slowing, but of course it is. A recent article we wrote about the growth of technology since Olympic Games in 2008 and those about to kick off today in 2012 shows just how far Facebook has come in the last four years – from 100m users in 2008 to more than 900m in 2012.

Theoretically, if Facebook were able to maintain that trajectory we would be able to count down the days and hours until every single being on the planet was on Facebook. Fortunately, we live in a world of choice – well, most of us do – and for businesses to thrive they need challenges and competitors.

“Our goal is to help every person stay connected and every product they use be a great social experience,” said Mark Zuckerberg, Facebook founder and CEO.

“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,” he said.

The value of innovation

The real area of interest should be what Facebook is doing within its own ecosystem to get profitable and grow revenues.

And in fairness in the past year it has done a lot, from launching a new camera app for the iPhone, a global App Centre, deep integration for Facebook within Apple’s forthcoming iOS 6, sponsored stories in News Feed and the US$1bn acquisition of Instagram.

In terms of capital expenditure, the company’s spending has tripled to US$413m during the second quarter.

The company claims that in terms of return on investment from advertising campaigns – a subject of intense interest recently – a survey of 60 ad firms revealed that 70pc of campaigns resulted in a return on ad spend of five times or better.

The revenues of US$1.18bn were up 32pc on last year. Advertising represented 84pc of total revenue with payment and other fees contributing US$192m.

Now a public company, Facebook is struggling with the added pressure of maintaining a share price that has fallen a third of its value since it debuted at US$38 in May.

The social network is no doubt doing incredible things and its best days lie ahead in terms of innovation and user growth.

But by putting itself under the forensic glare of Wall Street, the mountain it has to climb next will involve proving it is growing in different ways than the pell-mell user growth of recent years. Like its advertisers, its investors will want a decent return on investment.

Remember, it is still a very young company that in its own way has already put a dent in the universe. It’s a long road ahead.

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Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com