Ahead of the Bell: Facebook shares sink

Facebook shares tumble in premarket trading after 2Q results disappoint investors

Associated Press

NEW YORK (AP) -- Shares of Facebook seem poised to open at their lowest level Friday since the social network's May IPO after quarterly results left investors cold.

The stock is down $3.46, or 13 percent, to $23.39 in premarket trading. Facebook Inc.'s initial public offering of stock priced at $38.

In its first financial report as a public company, Facebook said revenue grew 32 percent to $1.18 billion in the second quarter. Growth has slowed from earlier this year and from previous years. That's a concern for a newly public company. Investors are willing to value new companies highly, even if they are not making a profit, because they expect booming revenue.

Baird's Colin Sebastian also pointed out that the company is spending more on technology and hiring, driving up expenses. But he's not overly concerned. He backed his "Outperform" rating for Facebook, saying advertising revenue was better than expected and the company is improving its ability to make money from users who access Facebook from apps on their phones and tablet computers.

Mobile and users in developing countries are driving growth in active monthly users, said Sebastian. Facebook had 955 million active monthly users as of June 30, up 29 percent from a year ago.

"We don't view these results as dramatically good or bad," said Citi analyst Mark Mahaney. "Key questions remain: the future of Facebook mobile monetization and the future of Facebook user engagement."

Analysts also cautioned that the shares could be volatile because Facebook didn't provide a guidance for the rest of the year.

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