Facebook was on top of the world only 3 months ago following its record flotation in May this year.
How things have changed. Although there was some criticism of the bungled flotation and the ‘inflated’ price, most market analysts considered the price to be realistic given the global dominance of the social media behemoth and its intrinsic ability to pull in the advertising revenue. However, a lot can happen in 3 short months. Facebook is set to report a record loss of around $650 million, (£416 million) when it delivers its first set of trading results later this week.
So what’s gone wrong?
Has Facebook, the social media giant, suddenly lost the plot, or are other factors at play?
It appears that what will push Facebook into the red is the $1 billion accounting hit it has been forced to take to meet the share-based payouts for its own employees.
However, even if you ignore this one-off liability, then Facebook’s net earnings are still reckoned to have slid by to $271 million between April and June according to Morgan Stanley, the American bank who organised the float. If this wasn’t bad enough, the social media giant’s value has also plummeted by $20 billion since its stock market debut a couple of months ago. Analysts believe that technical glitches at the NASDAQ exchange and growing concerns over Facebook’s ability to ‘monetise’ smartphones have been responsible the share price drop from $38 to $28.76.
The social networking platform is expected to announce that this’ mobile pressure’ will continue to increase over time as more and more people access the platform whilst out and about.Mark Zuckerberg, the Facebook founder, has gone on record as saying that the hardest task the business faces over the coming years is going to be adapting the 900 million plus member site for mobile devices.
To compound matters, rival smartphone and tablet giant Apple is likely to announce an increase in profits of around 30%.
Second quarter profits from sales of its iPhone and iPad devices have increased by $10 billion over the period in spite of the economic downturn. Revenues are forecasted to jump by roughly 30% to $37 billion over the quarter, pushing Apple’s cash pile over $120 billion.
No doubt Mr Zuckerberg is looking over at his rival enviously.