Facebook Needs More Friends

Facebook’s first earnings report is now public and it’s making people a little cool to the world’s biggest friendship chain (955m users by the end of June). Facebook made a quarterly loss, of $157m. Since its IPO on May 18th, the company’s share price hasn’t regained its $38 initial price. On August 1st Facebook’s shares closed at $20.88.

One problem has been the efficacy of its pay-per-click ad – a primary source of revenue. As the Economist put it, “On July 30th Limited Run, a New York platform for the online shops of record labels, artists and designers, said it would delete its Facebook page. It estimated that 80% of clicks came from “bots”—computers rather than people, but triggering payments to Facebook all the same”.  Another problem has been Facebook fatigue with the ratio of daily to monthly users dipping. And then there’s the issue that 57% of users check their accounts on smartphones, but Facebook ads work poorly on small mobile screens.

Facebook’s underwhelming post-IPO period may reveal the incongruousness of submitting a social media platform built on trust, privacy and non-commercial, human exchanges with the demands of quarterly earnings. USA Today called it, a “disconnect between serving consumers and serving investors”. “The fact that Facebook seems more concerned about designing products for its users than finding ways to profit from them is irking investors, says Colin Sebastian of R.W. Baird. For instance, Facebook created software for tablet devices without a plan for generating revenue, which is opposite to the kind of strategy investors are looking for, Sebastian says. While one sympathizes with the investors, the quote epitomizes Facebook’s integrity, something it would be a mistake to ignore as the company faces the public equity markets.

Still, for all the skeptics, nobody should count Facebook out. No other social-media site even comes close and no social media strategy can function without Facebook.

Still THE Social Network.

Get used to seeing “sponsored stories” in news feeds– ads from favorite companies that spread by recommendation. Sheryl Sandberg, the chief operating officer, told analysts that click-through rates on ads in news feeds were “multiple times better” than on ads to the right of the screen.  Sandberg and Mark Zuckerberg, Facebook’s founder and boss, said stories in news feeds were bringing in more than $1m a day, half of that from mobile devices. In addition, like Google adwords, Facebook is starting an exchange on which marketers will be able to bid for ad impressions in real-time. The other move is towards the small and medium-sized business market ; while big advertisers accounted for one-third of Facebook’s ad revenue last year, small firms and online businesses have stalled, leading to the slowdown in Facebook’s growth.

In the end, let’s remember that Facebook is 8 years old and worth $50 billion. How could you call that anything but a spectacular success?