Facebook falls after report fails to quell concerns over growth

July 27 (Bloomberg) -- Facebook Inc. plunged to a record after its first earnings report as a public company showed a slower sales gain and narrower profit margins, failing to allay concerns over growth that have dragged down the shares.

Operating margin, excluding certain costs, was 43 percent in the second quarter, a drop from 53 percent a year earlier, amid a fourfold surge in sales and marketing expenses, Facebook said yesterday. Revenue rose 32 percent, the slowest pace on record, and payments-related sales were $192 million, below the $199.3 million average analyst prediction in a Bloomberg survey.

Facebook executives led by Chief Executive Officer Mark Zuckerberg, addressing analysts for the first time since the company’s May 17 initial public offering, issued no growth forecasts and said little else to reassure investors who fret that the company is overvalued. The largest social network is adding users faster than it can generate ad sales, the company said, reiterating remarks it made in the run-up to the IPO.

“It has become a show-me story,” said Nabil Elsheshai, a senior equity research analyst at Thrivent Financial for Lutherans. “The problem is deceleration, and there wasn’t anything from an outlook perspective that would indicate that is going to stop.”

Facebook shares slumped as much as 14 percent to $23, and traded at $23.34 at 9:31 a.m. in New York. Through yesterday, the Menlo Park, California-based company was down 29 percent from its $38 IPO price.

Expenses Surge

Sales increased to $1.18 billion, topping the average estimate of $1.16 billion, according to data compiled by Bloomberg. Monthly active users rose to 955 million, exceeding the 950.1 million prediction by analysts surveyed by Bloomberg.

The revenue increase was dwarfed by a surge in spending on marketing and sales, which ballooned to $392 million. The company reported a net loss of $157 million, or 8 cents a share, and profit excluding certain costs of 12 cents a share.

Yesterday’s report and conference call -- the most highly anticipated earnings release since Google Inc.’s inaugural figures in 2004 -- gave management its first chance since May to make a case that Facebook deserves a higher price relative to earnings than 98 percent of the Standard & Poor’s 500.

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