Mark Zuckerberg took Facebook’s first earnings call Thursday evening, and despite announcing figures meeting expectations, shares dropped a further 10%. However, his most interesting statement was his denial that the social networking firm is making a mobile phone.
Phone ‘wouldn’t make sense’
In May, it was widely reported that Facebook was working on building its own phone, know internally as ‘Project Buffy’, but when Wells Fargo analyst Jason Maynard directly asked if a handset was in development, Zuckerberg seemed to pour cold water on the idea. “There are lots of things that you can build in other operating systems, as well,” he said, “that aren’t really taking — that aren’t really like building out a whole phone which I think wouldn’t really make much sense for us to do.”
Zuckerberg, instead, emphasised other mobile strategies like the recently launched Facebook app store where third-party developers are encouraged to build applications into the Facebook network. But, when you look carefully at what he actually said, he hasn’t ruled out the possibility of a Facebook phone. Zuckerberg said he thinks building a whole phone didn’t make sense, but all reports to date suggest that the device was being developed in partnership with HTC … so the rumours are likely to persist. However, it might be a while before the device surfaces, as former CTO Brett Taylor was thought to be leading the project before he left last month to set up his own company.
Losses posted but results as expected
Earlier in the call, Zuckerberg announced profit of 12 cent per share on revenue of $1.18 billion which was slightly better than the 12 cent and $1.15 billion analysts expected. However, despite an increase in revenue of 32% from the last quarter, spiraling sales and marketing costs resulted in a net loss of $157 million which spooked investors, causing shares to drop 10% in after-hours trading.
One bright spot was that ad revenue was up 28% to $992 million and Facebook was quick to praise its new ‘sponsored stories’ – endorsements that show up in users’ news feeds, a little like promoted tweets – which it believes will solve the mobile ad problem.
The Q2 loss also included once–off expenses related to compensating employees (including massive payments to Zuckerberg and other early employees) with stock from its IPO, and discounting these payments, profits of $295 million were actually made. So, just as I wouldn’t write off the chances of seeing a Facebook phone, Q3 results could well paint a different picture for the social media giant.