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Lack of financial outlook drives down Facebook shares

Tags: Facebook

Facebook Inc. (FB-Q) shares were down nearly 16 percent in early trading on Friday after the company's lack of a financial forecast reinforced concerns about its mobile strategy, which will result in rapid cash burn in the near term.

The social network, which reported its first quarterly results as public company on Thursday, managed to just beat revenue expectations.

"Based on the aftermarket reaction to the earnings it appears that investors wanted more than a slight beat," Piper Jaffray & Co analysts said in a client note.

Investors who have been worried about how the social network would make money from mobile advertising had also hoped that the company would signal that revenue growth was picking up.

"Facebook has established itself as an Internet Utility, but it might take a while for Facebook to gain Wall Street Love," Citi Investment Research analysts said in a note.

Shares of Facebook have shed a third of their value since the company's ill-starred debut at $38 on May 18.

J.P. Morgan Securities analysts said the stock could also be coming under pressure because of a lock-up expiring on Aug. 19 when some early investors will be able to sell their shares, flooding the market with stock.

Most analysts, however, said the company's mobile strategy was the biggest wildcard that would determine future growth.

MOBILE MOJO

"Facebook is in the early stages of an important transition in its (mobile) advertising business that should drive accelerating growth and margin expansion over time," J.P. Morgan Securities analysts said.

Users are increasingly access Facebook through mobile devices, which have less space for advertising.

Facebook only recently began to offer limited advertising on its mobile platform. The company generates a very small portion of revenue from mobile, but is investing heavily in improving mobile apps and building a platform on top of which new apps can be built.

Capital expenditures tripled in the second quarter and the company said its operating costs would increase significantly in the second half of the year.

The company ended the quarter with 543 million active monthly mobile users, up 67 perent from a year earlier but advertising views lagged user growth. Mobile users now account for 57 percent of total users.

The bright spot was that sponsored stories brought in much better rates than traditional ads, allowing Facebook to increase prices by 9 percent, Morgan Stanley analysts said.

A sponsored story is an ad that appears on a user's Facebook page and tells the user that a friend "likes" the advertiser.

According to Thomson Reuters' StarMine, six analysts rate the stock a "strong buy," 11 rate it "buy,", 17 rate it a "hold", while one each rate it a "sell" and "strong sell".

The mean price target on the stock is $38.21, suggesting a 42 percent upside to shares from its Thursday close of $26.84.

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