March 25, 2023

Facebook Shares Touch a Symbolic Threshold

On Wednesday morning, the company’s stock crossed an important psychological barrier, trading above $38 a share, the price at which Facebook, the world’s leading social network, first sold shares to the public in May 2012.

The catalyst for the rise was the company’s surprisingly strong second-quarter earnings report last Wednesday, which quelled many investors’ doubts about Facebook’s ability to make money from its legions of mobile users and suggested that the company’s profit stream would continue growing.

Since last week’s report, shares have risen about 34 percent. Early Wednesday, they briefly touched $38.31 a share, although they pulled back to end at $36.80 a share at the time the market closed.

The company’s shares hit a low of $17.55 last fall. Since then, investors have warmed to the company as its management demonstrated that it can increase profits and not just users.

“There was a perception that they hadn’t monetized the users they have,” said Aaron Kessler, an analyst at the Raymond James brokerage firm, referring to last summer, when the Facebook’s stock was trading at half the current level.

These days, Wall Street sees revenue potential everywhere — from soon-to-come video ads in the Facebook news feed to the expansion of high-dollar ads targeted to specific swaths of Facebook users.

“Facebook was caught flat-footed by the shift to mobile,” said Mark S. Mahaney, an analyst with RBC Capital Markets. Now, he said, “they appear to be set up as a sustainable, high-growth business.”

Still, there are reasons to be concerned. Mobile messaging platforms like Snapchat and WhatsApp are grabbing the attention of many of Facebook’s younger users. Twitter is mounting a major effort to go after marketers, especially brands that typically advertise on television, as it prepares for its own likely public offering.

And Facebook risks turning off users with too many ads. About 1 in 20 items in the news feed, the main flow of items that a Facebook user sees, is an ad. During the company’s quarterly conference call with analysts, Facebook’s co-founder and chief executive, Mark Zuckerberg, said that users were beginning to notice the number of ads, suggesting that the company could not greatly increase their frequency without losing some users.

Nate Elliott, a principal analyst with Forrester Research, said Facebook users who visit the site on a computer’s browser still see too many cheap, poorly targeted ads on the right side of the page. “They’ve got to get much better at targeting,” he said.

Despite these worries, investors’ views of the company’s prospects have clearly changed.

Mr. Mahaney, whose firm has a $40 price target on the Facebook stock, said that analysts across Wall Street had increased their projections of the company’s financial performance. Analysts now expect Facebook to increase its profits 30 to 35 percent a year through 2015.

Because stocks tend to trade as a multiple of a company’s future profits, those upgrades last week sent Facebook’s stock soaring.

Facebook officials declined to comment on the stock rise on Wednesday. But for the company’s executives, who had urged investors to be patient as their strategy played out, the surge surely offers some vindication.

The company raised $16 billion from the initial public offering on May 18, 2012, vaulting it into the big leagues of American stocks, but problems struck immediately. The Nasdaq stock exchange botched the handling of buy and sell orders on the first day of trading — so badly, in fact, that regulators eventually fined Nasdaq $10 million for the fiasco.

In ensuing weeks, Facebook shares continued to fall. Instead of pouring into the stock, as they did a decade earlier with Google, many investors questioned whether Facebook’s stock was overpriced at $38 a share.

Particularly worrisome was Facebook’s seemingly nonexistent mobile strategy just as Internet users were abandoning PCs for their smartphones. The company’s smartphone and iPad applications were clunky, and it was generating no revenue from mobile ads.

Facebook’s management, including Mr. Zuckerberg, recognized the problem and began a crash course to revamp the company’s approach to mobile and better position the company for fast-growing emerging markets.

The company overhauled its apps, introduced ads into its users’ news feeds, and created a new category of revenue called app-install ads. With the app-install ads, a game maker, for example, can promote its new game in Facebook’s mobile software and give users an easy way to install the app with just a couple of clicks.

Facebook also introduced new advertising products meant to give marketers more ways to target specific groups of customers, which allowed the service to charge higher advertising rates.

While mobile advertising continues to grow, and was about 41 percent of Facebook’s ad revenue in the second quarter, investors are also looking to new areas of potential profit growth. Those include video advertising in the news feed, which is expected to begin later this year, and the possible sale of ads in Instagram, the fast-growing photo and video-sharing app that Facebook bought in 2012.

“All of those seem like relatively large low-hanging fruit, and they are starting to go after them,” Mr. Mahaney said.

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DealBook: Research in Motion Projects a Quarterly Loss

6:24 p.m. | Updated

OTTAWA — Research in Motion, the beleaguered BlackBerry maker that is trying to revive its sales, warned investors on Tuesday that it was likely to post its second-consecutive quarterly loss next month.

In a bid to avoid the fate of Palm, a once high flying mobile device maker that was broken up and sold before effectively vanishing, RIM also said on Tuesday that it had retained J.P. Morgan Securities and RBC Capital Markets, a unit of the Royal Bank of Canada, to help guide it through a previously announced strategic review.

The review may lead to partnerships with other companies, the licensing of BlackBerry software or “strategic business model alternatives,” an apparent reference to the possible sale of all or part of the company.

“These advisers have been tasked to help us with the strategic review we referenced on our year-end financial results conference call and to evaluate the relative merits and feasibility of various financial strategies, including opportunities to leverage the BlackBerry platform through partnerships, licensing opportunities and strategic business model alternatives,” Research in Motion said in a statement.

In the latest announcement, Thorsten Heins, who became president and chief executive this year, said that declining sales and lower prices of BlackBerry handsets were likely to lead to the loss. The company’s loss during its previous quarter resulted from special charges.

“RIM is going through a significant transformation as we move towards the BlackBerry 10 launch, and our financial performance will continue to be challenging for the next few quarters,” he said.

Shaw Wu, an analyst with Sterne Agee in San Francisco, said it appeared that the RIM’s finances were quickly deteriorating.

“The biggest shock is that this was a company that was still able to say that even though they were in a tough position, they were still profitable,” Mr. Wu said. “Now they can’t claim that any more. This is what happened to Palm when things turned really sour.”

The company’s statement indicated that it was likely to increase the $2.1 billion in cash it had at the end of its last quarter. But Mr. Wu said that given the forecast for a loss, that increase would probably result from RIM collecting debts rather than growing its business.

Mr. Heins reiterated that the BlackBerry 10 phones were on schedule for their much delayed introduction. But he once again did not provide a date for that event beyond indicating that it would take place “in the latter part of calendar 2012.”

BlackBerry sales continued to grow in developing markets, Mr. Heins said, but that good news was “partially offset by high churn in the United States.” Customers in those markets also favor lower-cost BlackBerrys, which generate correspondingly lower profit margins for RIM.

Mr. Heins also said the company aimed to cut costs by $1 billion during the current fiscal year. That is likely to fuel widespread speculation in Canada’s technology industry that substantial job reductions are likely to come at RIM, which is based in Waterloo, Ontario.

“While there will be
 significant spending reductions and headcount reductions in some 
areas throughout the remainder of the fiscal year, we will continue
 to spend and hire in key areas such as those associated with the 
launch of BlackBerry 10, and those tied to the growth of our 
application developer community,” Mr. Heins said in the statement.

RIM’s first quarter of its 2013 fiscal year closes on Saturday. The company will report its results on June 28.

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Economix Blog: Calling on the Fed

What I would give to be a fly on in the wall at the Federal Reserve right now, where Ben S. Bernanke is probably doing a double take on Friday’s horrible jobs report.



Dollars to doughnuts.

The Fed’s recently released minutes from its August meeting showed huge disagreements over whether more monetary stimulus — and what form of monetary stimulus — was necessary. Many of the members of the Federal Open Market Committee, which sets interest rates, said they wanted to do something to help the economy, like further expanding or rejiggering the Fed’s balance sheet or decreasing the interest rate paid for banks’ excess reserves. And some wanted to do nothing.

Ultimately members decided to pledge to keep short-term interest rates near zero until “at least mid-2013,” although there was clearly more appetite from some of the members for more easing. The committee even decided to stretch out its September meeting to allow more time for discussion of these issues.

Publicly Mr. Bernanke, the Fed chairman, has argued that government policy can and should play a significant role in helping the economy grow, but emphasized that Congress should be the ones to lead the way. Congress, however, is trying to tighten fiscal policy, which is the exact opposite of stimulus, and seems fairly entrenched in this view.

It will be interesting to see how this dismal jobs report, which didn’t even meet economists’ already very low expectations, affects the committee meeting. The Fed may not have much ammunition left, but perhaps this latest news will convince it to fire what bullets it has.

Many Wall Street economists, including those at Goldman Sachs and RBC Capital Markets, are now predicting that the Fed will announce a change in the composition of its balance sheet so that it holds more longer-term assets.

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Markets Tumble on Europe’s Debt Crisis

Monday’s weak start in the financial markets reflected a series of blows, including a hangover of disappointing economic news from the United States over jobs data, debt talks that worked to depress sentiment and lingering worries as European officials met in Brussels to discuss fiscal troubles in the euro zone.

After weeks of uncertainty related to bailouts for Greece, the Italian authorities moved to rein in short-selling on the Milan stock exchange as fears mounted that Italy could become the next victim of the sovereign debt crisis.

A half-hour before the close of trading, the Dow Jones industrial average was down 178.38 points, or 1.41 percent, to 12,478.82. The broader Standard Poor’s 500-stock index fell 25.61 points, or 1.91 percent, to 1,318.26. The Nasdaq composite, heavy with technology shares, lost 62.24 points, or 2.18 percent, to 2,797.57.

“There is so much going on in the world that you almost need a scorecard to keep up,” Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, wrote in a research note.

“If Italy becomes more of a problem, then it could spiral out of control and cause the much-feared contagion that some have predicted,” Mr. Giddis wrote. “If that is the case, then a global economic slowdown will likely hit our shores here and take the legs out of an already wounded U.S. economy.”

As risk aversion stepped up on Monday, United States Treasuries were trading higher. The euro fell 1.4 percent to $1.4017.

“Global issues are still outstanding,” said Jason Arnold, a financial analyst with RBC Capital Markets Corp. “Markets were still digesting the jobs numbers from Friday, so I think that it is also a factor.” Asian markets, in particular, reacted to the United States government report that just 18,000 jobs were added in June.

In Europe, the Milan Stock Exchange fell 3.8 percent on Monday. London’s FTSE was down 1.03 percent, the CAC in Paris was down 2.71 percent and the DAX in Frankfurt was down 2.33 percent.

On the broader market in the United States, financial shares were down more than 2 percent, while energy and materials indexes were lower by nearly that much.

Brian M. Youngberg, an energy analyst for Edward Jones, said the dollar rise connected with the events in the euro zone was putting downward pressure on oil prices, which in turn was affecting energy stocks. “Everything is revolving around Europe right now in some way,” he said.

Another weight on sentiment was the report over the weekend that inflation in China had reached a three-year high.

“It is kind of like this cocktail of disappointing information and data,” said Stephen Wood, chief market strategist for Russell Investments Chief.

William J. Schultz, chief investment officer for McQueen, Ball Associates Inc. , said that the debt ceiling talks and euro zone problems in particular “put this tone” to the market.

But he and other market analysts are pinning their hopes on the coming corporate reporting season for the second quarter.

“Those things are weighing, and now the hope is we are going to get earnings surprises on the positive side,” he said.

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