Facebook Inc. (Nasdaq: FB) shares are under pressure in the run-up to an earnings report, due next week, that will probably indicate growth slowed in the second quarter.
The shares pared losses Wednesday, rising 3.6 percent to $29.11 at the close in New York. Including today’s gain, the stock has dropped 23 percent since its May 17 initial public offering.
The largest social-networking service is struggling to add users in some markets, including the U.S., that make up most of its sales, according to Capstone Investments research. A predicted sales slowdown led analysts to slice second-quarter revenue projections 4 percent to $1.16 billion in the past month, data compiled by Bloomberg show. The prediction for per-share profit, excluding some items, fell 10 percent to 11 cents.
“People are concerned about the growth profile,” said Benjamin Schachter, an analyst at Macquarie Securities USA Inc. “More risk is being reflected in the lower stock price.”
U.S. users on Facebook’s site slipped 1.1 percent, Rory Maher, an analyst at Capstone, wrote in a note Wednesday, citing analysis of Facebook users in more than 200 countries.
“Perhaps penetration in the U.S. is reaching maturity, which has implications for revenue growth and user growth,” Maher said in an interview. “It’s reason to be concerned.”
Shares will probably be weighed down further as Facebook nears the end of its “lockup” – a post-IPO period during which Securities and Exchange Commission regulations bar insiders from unloading shares. Some employees will be able to freely sell stock next month, data compiled by Bloomberg show.
Another concern for investors is the company’s ability to make money from advertisers vying to reach social-network users on mobile devices. Facebook Chief Executive Officer Mark Zuckerberg is focused on adapting his service to mobile devices, where growth in usage is outpacing sales from mobile ads. Bringing Facebook’s features to handheld gadgets is difficult because the user experience is so different than on desktop computers, he said in an interview at the Allen & Co. conference in Sun Valley, Idaho.
Ads shown on mobile phones are smaller and may be less appealing to advertisers and less lucrative than marketing messages on bigger computers. This concern prompted Facebook, just days before the IPO, to advise analysts to lower their estimates for second-quarter sales.
“Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results,” Facebook said in an SEC filing at the time.
If second-quarter sales meet projections, Facebook would see an increase of 30 percent from a year earlier. Revenue rose 45 percent in the first quarter, compared with 55 percent in the fourth quarter. Sales more than doubled in each of the three periods before that.
Average analyst estimates dropped in late June, when at least 17 securities firms began coverage of the company. Morgan Stanley gave Facebook the equivalent of a buy rating, as did JPMorgan Chase & Co., Goldman Sachs Group Inc. and five other firms. Among analysts who cover Facebook, there are 19 buy ratings, 16 holds and 3 sells.
Competitive concerns were also raised this week, as Google Inc.’s social network debuted at the top spot on the American Customer Satisfaction Index E-Business Report, which ranks companies on a 100-point scale. Facebook, criticized for changes to its interface, had a lower score than in previous years.