- Shares tumble despite revenue of $1.18billion, in line with expectations
- Firm lost $157million because of cost of May's botched IPO
- Total number of users now stands at 955million - one seventh of the world
By Beth Stebner and Hugo Gye
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Anxious: Facebook CEO Mark Zuckerberg is under tremendous pressure to make sure his company does well following its IPO
Facebook executives are breathing a sigh of relief as the company released its first results since going public in a much-hyped but ultimately botched IPO two months ago.
However, shares in the social network still fell after the announcement as it was revealed that the firm made a loss of more than $150million due to a number of one-off payments related to the initial public offering.
The shares, which opened at $42.05 when trading began on May 18, tumbled to an all-time low of $24.03 in after-hours trading following the release of the earnings report on Thursday afternoon.
The slide hit CEO Mark Zuckerberg personally, as his net worth fell by more than $2billion thanks to the reduction in the value of his own stake in the firm he founded in his Harvard dorm room.
Facebook also revealed that its number of users was coming ever closer to the 1billion mark, hitting 955million at the latest count - nearly one seventh of the world's population.
This growth in the number of people with accounts on the network shows little sign of slowing, with the total having risen by 29 per cent since last year.
The number of people employed by Facebook is growing even faster, it emerged on Thursday - the firm now has nearly 4,000 workers, up 50 per cent over the year.
The firm's revenue grew 32 per cent to $1.18billion, from $895million a year ago, a slightly stronger performance than most analysts had expected.
Investors seem to have been holding out hope that Facebook would far exceed expectations - even though the company effectively warned investors before its IPO that Wall Street's expectations were too high.
Excitement: But Facebook's shares have continued to tumble since its landmark IPO in May
In a filing issued a week before its IPO, for instance, Facebook said its mobile users are growing at a faster pace than the number of ads on its mobile platform.
Analysts took that as a sign that their estimates were out of whack and many of them reduced their estimates for Facebook's projected revenue and earnings.
That said, Facebook didn't start showing ads on its mobile app until this spring. While it is true that it was late to the game - after all, its mobile user base is growing fast - it does not mean it will not be able to grow mobile advertising revenue in the future.
Overall, Facebook said its revenue from advertising totalled $992million, a 28 per cent increase from the same quarter last year. That accounted for 84 per cent of total revenue.
The company did not provide an outlook in its earnings press release - another possible reason for investors' disappointment.
Waiting game: Traders work on the floor of the New York Stock Exchange during afternoon trading on the 24th; investors and analysts are highly anticipating Facebook's earnings report
Tense times: Investors, seen on the floor of the NYSE on July 24, looked apprehensive, left, and right, Facebook's share price fell to a low of $25.87 on June 5th and has shakily landed at $29.34
FACEBOOK BY NUMBERS
Users: 955million (up 29%)
Revenue: $1.18billion (up 31%)
Profit: -$157million
Employees: Nearly 4,000 (up 50%)
Facebook shares tumbled ahead of its first quarterly results announcement, hurt by a weak quarterly report and a foreboding outlook from online game developer Zynga, which hosts popular games like Farmville.
Shares in Facebook dropped seven per cent to $27.65 in pre-market trading while Zynga slumped a staggering 40 per cent to $3.04 – and the pair were the two most heavily traded stocks before the bell on Nasdaq.
Investors were bracing themselves for what could be some very bad news.
'Considering that Zynga was a recent IPO, it's another black eye for Wall Street. You bring up an IPO and you get burnt again and again,' Joe Saluzzi, co-founder of Themis Trading LLC in Chatham, New Jersey, told Reuters.
Zynga's results are 'not creating good confidence in the sector as they (social media companies are) certainly related to each other.'
The fate of the two companies is intertwined, with Zynga's games, such as 'FarmVille' and 'CityVille,' helping to make up more than a tenth of Facebook's revenue last year.
Excitement: Onlookers in Times Square took pictures of Zuckerberg, seen on a screen moments after Facebook's IPO in May
Late on Wednesday, Zynga slashed its 2012 outlook and the company's quarterly results badly missed Wall Street targets.
A number of brokerages cut their price targets on the company on Thursday, including Wedbush, Citigroup and Lazard, casting some uncertainty over Facebook ahead of its inaugural results after the close of trading Thursday.
Earlier this week, the options market was forecasting a 14 per cent move up or down in Facebook shares following the results. That means options investors expect the stock to rise to as much as $32 by Friday or to fall to as low as $24.
Since the IPOs, shares of Facebook and Zynga have been in a downward spiral. Facebook is off more than $10 from its market debut price of $38 in May, and Zynga is at $4.92, nearly half its debut price of $9.50 in December.
Despite the steep decline in their share prices, Facebook and Zynga are both trading well above their market valuations. Facebook is still trading at around 70 times earnings, according to Thomson Reuters data.
An analysis by Thomson Reuters StarMine puts the company's intrinsic value at a modest $9.72 a share, or about one third its current value, based on estimates of the company's projected growth for the next decade.
Earlier in the week, analysts, on average, were expecting revenue in the second quarter to grow 28 percent to $1.15billion.
With over 900million users, Facebook is the world's largest social networking company, challenging established Web companies for consumers' online time and for advertising revenue.
EMERGING MARKETS-Draghi's pledge boosts Latam stocks - Reuters
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NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.
Cincinnati Financial tops Street on lower catastrophe losses - Reuters UK
* Q2 EPS $0.20 vs loss of $0.31 per share, a year ago
* Q2 oper EPS $0.17 vs est $0.11
* Q2 catastrophe losses halve to $147 mln
* Q2 earned premiums up 13 pct
July 26 (Reuters) - Cincinnati Financial Corp posted a quarterly profit that beat Wall Street estimates as the property and casualty insurer benefited from lower catastrophe losses and firming insurance rates.
Second quarter net income was $32 million, or 20 cents per share, compared with a net loss of $50 million, or loss of 31 cents per share, last year.
Operating profit, a key metric of profitability for insurers as it excludes certain investment gains and losses, was 17 cents per share.
Analysts on average expected the company to earn 11 cents per share, according to Thomson Reuters I/B/E/S.
Earned premiums rose 13 percent to $877 million.
The company had said earlier this month that it expected lower impact from catastrophe losses in the quarter.
Catastrophe losses for the quarter were almost half of year ago levels at $147 million, while combined ratio was 109.5 percent.
The combined ratio is the percentage of premium revenue an insurer has to pay out in claims and expenses. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss.
Cincinnati Financial shares closed at $37.57 on Thursday on the Nasdaq. (Reporting by Aman Shah in Bangalore; Editing by Anil D'Silva)
Stocks to watch early on Friday - News.com.au
STOCKS to watch on the Australian stock exchange at noon on Friday:
BBG - BILLABONG INTERNATIONAL LTD - steady at $1.35
Troubled surfwear retailer Billabong appears to be going cold on a $695 million takeover offer from US private equity group TPG.
CTX - CALTEX AUSTRLIA LTD - down 33 cents, or 2.31 per cent, at $13.93
There is nothing the NSW government can do about the loss of jobs at Caltex's Sydney oil refinery, state premier Barry O'Farrell says.
IAU - INTREPID MINES LTD - down 0.5 cents, or 2.04 per cent, at 24 cents
Intrepid Mines has posted a first half loss of $US31.97 million ($A30.86 million) as it aims to resolve joint venture problems and legal issues at its Indonesian operations.
VTA - VITERRA INC - last traded at $15.22
The Australian government has given the all-clear to commodities trader Glencore International's $6 billion takeover of dual-listed agribusiness Viterra Inc.
Miami weighs 'financial urgency' to cut staff costs - Reuters
MIAMI |
MIAMI (Reuters) - Miami officials pushing for $40 million in union concessions weighed on Thursday declaring "financial urgency," an action that would allow the Florida city to unilaterally alter employee contracts, according to a media report.
The Miami Herald website on Thursday quoted Miami Mayor Tomas Regalado as saying the declaration would be issued on Thursday by City Manager Johnny Martinez because the savings were needed to balance the city's $485 million operating budget for the next fiscal year.
"The unions are not cooperating with the process," Regalado told the Herald. "We need to have a balanced budget."
Regalado and Martinez did not respond to inquiries seeking comment on the report, though Regalado defended the proposed cuts at a meeting of the Miami City Commission.
Other city officials declined to comment on the timing of the expected declaration, which had been issued by late on Thursday.
Regalado, who has used the Florida financial urgency law three times to impose staff spending cuts since 2009, said austerity was needed, would encourage outside investment and migration, and leave the city of 410,000 well placed.
"The base of the future will be better," Regalado said.
Miami officials are pushing for the concessions from the city's four government workers' unions as part of a plan to plug a $60 million gap. Overtime limits for firefighters and higher health insurance contributions are among the city's proposals.
Part of the budget shortfall is caused by the scheduled expiration of temporary concessions made last year by police and other unions. Almost 80 percent of Miami's budget goes to compensate city workers.
STUNG BY HOUSING COLLAPSE
Labor leaders told city commissioners on Thursday that Miami's unions had made substantial give-backs to help ease financial pressure on the city. Firefighters said their pay has been reduced by 35 percent in recent years, when the city declared financial urgency three times.
Miami was losing experienced workers and having difficulties recruiting new ones because of the cutbacks, union leaders said. They said the city should consider increasing property taxes that Regalado has proposed reducing.
Stung especially hard by the U.S. housing collapse, Miami used Florida's financial urgency law in May 2010 to change labor terms that saved the city $80 million. Other Florida cities, like nearby Hollywood, have also used the law to force pay cuts on government workers.
On Wednesday, Moody's Investors Service put $669 million of Miami's debt on review for possible ratings cuts after federal regulators determined that city officials had misled bond investors about its finances.
Other leading ratings groups, Standard & Poor's and Fitch, said their analysts were closely watching the inquiry by the U.S. Securities and Exchange Commission but would take no immediate ratings actions on Miami's debt.
"While Fitch is concerned about the costs and potential operational disruptions associated with the ongoing investigation, recent financial results indicate some modest improvement in the city's overall financial position," Fitch said in written statement.
(Reporting by Michael Connor in Miami; Editing by Tiziana Barghini and Stacey Joyce)
Specter of higher taxes may not spur family-business deals - Reuters
NEW YORK |
NEW YORK (Reuters) - Private bankers say the prospect of expiring U.S. tax cuts makes 2012 an opportune time for wealthy families to sell their businesses. But a host of obstacles will likely prevent a flood of deals.
Wealth managers to the rich are telling clients who are considering selling a family business, they'd better act fast. Capital gains taxes will rise to as high as 25 percent from 15 percent if Congress does not extend cuts set to expire December 31. The cuts were enacted under President George W. Bush in 2001.
Some people earning more than $200,000 a year also face a 3.8 percent Medicare surcharge on investment income.
As a further incentive to sell, companies and private-equity buyers have piles of cash and financing for deals is widely available, investment bankers say, driving valuations for some sectors to their highest since 2008.
But owners starting the sales process now may find there is not enough time. Others may choose to keep businesses in the family for personal reasons that outweigh the possibility of a bigger tax bill later.
"The vast majority of companies are deciding they're not going to sell," said Cascadia Capital LLC managing director Christian Schiller, who advises family-owned companies for the Seattle investment bank. "Family companies are driven by a number of legacy issues, and taxes are one of the smallest."
Even so, some wealth advisers, who benefit from sales that generate windfalls of cash to invest, are warning clients about the perils of waiting.
Northern Trust Co, one of largest providers of estate and investment advice to multi-millionaires, says a family selling a $70 million business on December 31 would pay $10.5 million in gains taxes. On January 1, that tax bill could jump to as much as $20.2 million.
"That's real money," said Mary Ann Sisco, head of client solutions at Northern Trust's wealth management division.
OBSTACLES
The biggest obstacle to getting a business sold by the end of the year: time. Examining the books of a business for sale and drumming up cash can take prospective buyers six months.
"Unless you're already on the sales block, you're probably out of luck," said Holly Isdale, a former Lehman Brothers and Bessemer Trust adviser who formed Wealthaven LLC in 2010 to counsel ultra-rich families on estate and tax planning.
Many non-financial issues can also scuttle deals. Parents and grandparents, for example, may become emotionally invested in a company and see their business as a legacy they want to pass on to heirs.
"People say 'I've given my life to this company. How can I put a dollar sign on it?'," said Dennis Jaffe, a professor at Saybrook University in San Francisco.
Jaffe, who also runs a consulting business that advises wealthy families, said many families struggle with cutting ties. In some cases, families inflate their asking price, deterring serious buyers.
There are external factors, too. Choppy markets, continuing weakness in the U.S. economy and other storm clouds may derail deals. Robert W. Baird investment banker Howard Lanser said worries about Europe's debt crisis last month briefly put some deals on hold.
What's more, valuations for smaller companies -- those under $100 million -- or those in more cyclical businesses, have not yet fully recovered. Owners in these cases are more inclined to hold on, bankers said.
Some owners will conclude they will be better off keeping their business as a vehicle for building new wealth as well as generating income.
"There's a back-to-basics movement in wealth management," said Mindy Rosenthal, a managing director of Campden Wealth, a global ultra-rich family networking group. "You're not going to create or re-create your wealth by playing the markets."
Private companies have been more attractive as investments while stocks are volatile and yields are thin, she said.
But, there's "no clear consensus on what families will do," said Bryant Seaman, head of Bessemer Trust's private asset advisory group. "There are also questions about whether the Bush tax cuts will be extended."
On July 9, President Barack Obama proposed maintaining the reduced tax rates one more year for families earning less than $250,000 a year. Tax cuts for wealthy families would expire.
Democrats in the Senate on Wednesday won passage of a bill that renewed tax cuts for most Americans, while letting rates rise for the wealthiest, but the vote was considered symbolic because the legislation is expected to be rejected by the Republican-controlled House of Representatives.
Republicans, who hope to take the White House this November, support extending tax cuts for wealthy taxpayers as well.
Two years ago, just weeks before the Bush tax package was originally set to expire, Obama extended the cuts.
DEAL ACTIVITY
Despite the obstacles, bankers and wealth advisers say families are heeding their warnings about higher taxes. Bankers say they saw a spike in business owners engaging their services in April and May.
But many families are moving slowly. As a result, deals may come at the end of the year,, bankers said, echoing what happened in 2010 when the Bush tax package was first expected to expire.
Excluding sales by private equity firms or divestitures, there were $54 billion of private company deals in the first half of this year, down 3.6 percent from the same period last year, according to research firm Dealogic and Baird. However, the number of these deals rose 17 percent to 3,236 in the first half, the data showed.
Many families may compromise and decide to play it halfway by selling a minority stake of their company to private-equity investment firms. Such partial sales would let families realize gains at low tax rates and, in some cases, continue to operate the business.
Family companies can be attractive to such firms because they tend to have little debt.
"There's tremendous interest from private equity," said Steve Burt, head of the merger advisory business at Duff & Phelps, which specializes in deals up to $500 million. "I'd love to be in the wealth management business at the end of this year: there's going to be a lot of liquidity to manage."
(This story corrects paragraph 9 spelling to Sisco instead of Cisco)
(Reporting By Joseph A. Giannone; Editing by Walden Siew, Jennifer Merritt and Tim Dobbyn)
Water stocks are FTSE 100’s damp squibs - Financial Times
Last updated: July 26, 2012 8:26 pm
Facebook's financial results rattle Wall Street - Chicago Tribune
SAN FRANCISCO — Facebook was supposed to be one of the 21st century's hottest stocks, but its inaugural quarterly report as a public company may have doused hope for a technology rally on Wall Street.
The social networking powerhouse that disappointed investors with its bungled stock market debut in May did it again Thursday. It reported a dramatic slowdown in revenue growth and a huge surge in costs.
Although sales topped projections and Facebook showed signs of progress in wringing advertising revenue from its 955 million users, investors were spooked by a fourfold surge in marketing and sales expenses and a warning from Facebook that it would continue to increase those expenses "significantly."
The jump in costs, analysts say, was so unexpected that it prompted a sharp sell-off in after-hours trading, driving the stock down more than 11% at one point to below $24 a share. It had fallen 8.5% during the regular trading session —closing at $26.85, down $2.50 — before the company released its earnings.
Instead of redemption, Facebook once again found itself being whipsawed by doubts over its advertising-fueled business. Facebook's growth rate was its lowest since the first quarter of 2011, when it began disclosing financial information.
Facebook has lost a third of its value since its IPO in May at $38 as investors question the company's market value and its prospects as more users migrate to mobile devices.
Bottom line: Facebook has a lot of work to do if it hopes to compete with Google, Twitter and other Internet giants for consumers' attention and advertising dollars, GreenCrest Capital analyst Anupam Palit said.
"It turns out Charles Darwin's theory of the survival of the fittest applies just as much to Facebook as it does to any other company," Palit said.
Facebook's tight-lipped approach to financial forecasts and company strategy almost guarantees that the gyrations will continue. The company offered no guidance for the current period, disappointing some investors.
The earnings call with analysts was short on details and heavy on vision, which could put even more pressure on the stock, said Michael Yoshikami, chief executive of Destination Wealth Management.
"I suppose that makes some sense given the new market they're in, but the problem is the analyst community is hungry for a way to understand the opportunity Facebook provides. I'm not sure the call accomplished that," Yoshikami said. "A lack of concrete plans and no data to back up comments will no doubt impact the stock."
Wall Street scrutinized second-quarter results as an indicator of Facebook's growth potential. Revenue in the three months that ended June 30 rose 32% to $1.18 billion from $895 million a year earlier, beating the $1.15 billion analysts expected. But growth has slowed significantly from just a few quarters ago, when Facebook more than doubled revenue.
Facebook's quarterly loss of $157 million included expenses related to compensating employees with stock from its IPO, including the big payout to founder and Chief Executive Mark Zuckerberg and other top executives.
However, analysts measure companies through ongoing profitability that strips out these kinds of one-time items. Adjusted for the compensation expenses, Facebook posted earnings of $295 million, or 12 cents a share, which met projections.
Facebook is approaching 1 billion users, with more than half checking the site every day. Monthly active users climbed 29% from a year earlier to 955 million and daily active users rose 32% to 552 million. Mobile monthly active users were 543 million, up 67%.
The challenge is figuring out how to make money from those users. On the earnings call with analysts, Chief Operating Officer Sheryl Sandberg said: "We are still in the early days of building our monetization engine."
That engine is revving in mobile, Zuckerberg said. He expects 5 billion people will own smartphones over the next four or five years, creating even more opportunity for "sharing and connecting" on Facebook. Zuckerberg says Facebook has already seen good results from mobile ads.
Yet investors are growing impatient.
"We are disappointed in how the stock is trading," Chief Financial Officer David Ebersman acknowledged during the call. "We are the same company now as we were before, and we have the same opportunity in front of us to build something important and valuable."
Wall Street's reaction was an overhang from the IPO, Stifel Nicolaus analyst Jordan Rohan said.
"The company was as clear as it could be that this wouldn't be a knock-it-out-of-the-park quarter. It did admirably, yet the hype was still there," Rohan said.
"The hype over Facebook's IPO was unprecedented — bigger than Google's IPO, bigger than almost anything I've been involved with in my career — that just the residual hype made people think there was upside, that earnings would come way ahead of expectations, and they didn't," Rohan said.
Times staff writer Andrea Chang contributed to this report.
US STOCKS-Draghi-sparked rally helps S&P break losing streak - Reuters
* Draghi sends stocks soaring on euro zone comments
* After the bell, Facebook tumbles on results
* Sprint rallies, 3M gains but earnings season mixed
* Indexes up: S&P 1.7 pct, Dow 1.7 pct, Nasdaq 1.4 pct
NEW YORK, July 26 (Reuters) - U.S. stocks rode a wave of hope inspired by comments from European Central Bank President Mario Draghi on Thursday, ignoring mixed corporate results to focus on the strongest signal yet of the ECB's intentions to protect the euro zone.
Europe's debt woes have taken a toll on stocks at times during the past two years and more recently have manifested themselves in lackluster corporate results. The most recent disappointments came from United Technologies and Dow Chemical, which blamed overseas demand for weak results.
Draghi hinted the ECB would target high sovereign bond yields, a measure the ECB has been reluctant to take in the past. Policymakers have made similar statements about saving the euro before, but if these remarks result in decisive action in European bond markets, it could spur a sizable rally in stocks.
"It's certainly a vote of confidence," said Kathy Karlic, chief client officer at Wilmington Trust Investment Advisors in Buffalo, New York, which has $20 billion in assets under management.
"The wall of worry for the euro zone has always been there, but another round of liquidity is very positive."
Shares in sectors more sensitive to risks in Europe and economic demand, such as energy-related stocks and industrials, were among the day's best performers, with the S&P 500 energy index up 2.7 percent.
Worries about Europe have also pressured earnings forecasts, with third-quarter S&P 500 earnings now seen falling for a year-over-year decline.
Diversified manufacturer 3M, whose stock rose 2.1 percent to $90.59 after its results beat estimates, helped boost the Dow and was among the brighter spots of the earnings season.
Zynga shares ended down 37.5 percent at $3.17 after hitting an all-time low, a day after the company slashed its profit outlook after fading enthusiasm for its games on Facebook.
After the closing bell, shares of Facebook tumbled 11 percent to $23.87 after reporting its first quarterly results since Facebook's market debut. During the regular sessions its shares lost 8.5 percent.
Amazon.com shares were down 0.5 percent at $218.88 after the close following the release of its results. The online retailer forecast third-quarter revenue that lagged Wall Street's projections.
During the regular session, shares of Sprint Nextel Corp jumped 20.2 percent to $4.05 after the company posted earnings.
Sales performance this reporting period has lagged earnings. With results in from about half of the S&P 500 companies, 65 percent have beaten analyst earnings estimates but just 41 percent have beaten on revenue, Thomson Reuters data showed.
The Dow Jones industrial average was up 211.88 points, or 1.67 percent, at 12,887.93. The Standard & Poor's 500 Index was up 22.13 points, or 1.65 percent, at 1,360.02. The Nasdaq Composite Index was up 39.01 points, or 1.37 percent, at 2,893.25.
Shares of United Technologies ended up 0.4 percent at $72.93 while shares of Dow Chemical dropped 3.6 percent to $29.18.
The S&P 500 ended above the technically important 1,333 level, and a sustained move above that level is seen as bullish. The level marks a convergence of several technical factors, including the index's 50-day moving average, and has served as support for stocks.
In economic news, the number of Americans filing new claims for jobless benefits fell last week near a four-year low, although the figures have been volatile due to summer factory shutdowns. Durable goods orders for June were better than expected, but a slip in pending home sales underscored the fragility of the economy.
Volume was 7.44 billion shares on the New York Stock Exchange, the Nasdaq and Amex, compared with the year-to-date daily average of 6.74 billion shares.
Advancers beat decliners on the NYSE by about 11 to 4 and on the Nasdaq by about 2 to 1.
All this is still just HYPE!! Their hiring was up 50%? What exactly are those new employees making/doing? Facebook offers nothing tangible other than making you virtually water crops and feed cows. If they're a service company then they only serve them$elve$.
- Facebook EX, USA, 27/7/2012 00:57
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