Facebook Is Now Just Another Company

Skyrocketing growth, like Google or Apple? Forget it.

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Revenue grew, but not by surprising margins. Earnings met Wall Street expectations. The overall business climate is murky, and the future is hard to predict.

Yawn. This is the standard story for many companies as they trot out second quarter earnings. But Facebook was supposed to be different.

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When it went public in May, many retail investors viewed it as a rare chance to get in on the next tech goliath before it really took off.

How wrong they were. In its first earnings report since going public, Facebook saved itself from ignominy by reporting earnings of $295 million, excluding unusual charges. (On net, it reported a loss of $157 million, mostly due to payouts associated with its public offering.) Quarterly revenue rose to $1.2 billion, and the user base grew to 955 million. Those are respectable gains from one year ago. But they are nowhere near the types of numbers that the fastest-growing tech companies tend to report.

For one thing, meeting analyst estimates is largely considered a fail, since CEOs typically manage expectations in a way that makes their companies likely to beat estimates, and therefore appear to be outperforming. Apple, as one example, has beat estimates in 37 of the last 39 quarters, which means it's a seismic event when Apple misses estimates, as it did in its most recent earnings report. Apple has basically earned a pass on Wall Street, on account of extraordinary performance over many years, and the likelihood of future extraordinary performance. Not so for Facebook, as investors try to figure out just how transformative this breakthrough company will turn out to be.

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More and more, Facebook is looking like a run-of-the-mill company that's lucky to be in a growing industry, rather than a Google-like giant that is itself a new industry. So far this quarter, for instance, 67 percent of big firms that have reported earnings have beat expectations, according to S&P Capital IQ. Facebook is obviously not one of them, falling instead among the 12 percent of middling firms that met expectations. It barely avoided being one of the dogs that missed expectations.

Had Facebook's stock not debuted at the highly inflated price of $38 per share, the company would look a lot more buoyant now. But the last two months, leading up to the debut earnings report, have mostly been a period of downward adjustment in the company's value, with the stock drifting down below $27.

"The company's current valuation is much better now than when they went out to market," says Brian Hamilton, CEO of Sageworks, which provides financial information on companies. "It's difficult at this point to know whether it's a good buy, but it's a significantly better buy than when it went public."

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A once-and-for-all devaluation might actually do Facebook some good. Facebook has acknowledged risks to its business model as users migrate from computers to mobile devices, which make it harder to generate the ad revenue that makes the company profitable. Facebook might grab a large share of mobile screen time, or it might not. What now seems clear is that Facebook probably will not dominate one industry like a benign monopoly, the way Google has dominated search for more than a decade.

Once that unpleasantry is out in the open, Facebook can focus on underpromising and overdelivering. Lots of companies do it. They're the ones whose stock enjoys a nice bump when earnings turn out to be better than expected.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.