Facebook's second-quarter figures on Thursday weren't pretty: a $157m (£100m) loss is a bad start for your first public earnings report.
The social-networking company's share price subsequently tanked, dropping below $24 before the end of play yesterday — a 37-percent cut in value since its IPO in mid-May. When the markets opened this morning, the share price continued to fall and is now sitting at $22.79.
That might not have been very good news for Facebook or its shareholders, but it can hardly have come as a shock.
At the time of its IPO, Facebook was generally rated to be overvalued. Here's the problem: it has hundreds of millions of users, but is taking its own sweet time working out how to monetise them. As a case in point, it can't decide what to do to make money off its mobile users — and this situation endures.
Think about it for a second: if a company with a price-to-earnings ratio of 122 reports low earnings, that means it's banking on massive future growth. How Facebook will achieve this is less clear.
If you look at that $157m loss a little more closely, you'll find net income was dragged down by compensation payments: that is, for shares it promised to issue before its IPO and has now delivered. If you discount that, Facebook showed a profit of $295m — essentially flat in comparison with $285m in second quarter 2011.
That profit should be more worrying than the loss for anyone with money in the company, especially if Facebook starts looking like it's seeing a slowdown in new users. Why? Because if user numbers begin to slow and profit is flat, the only real way to improve the situation is to cut costs, and that can only achieve a certain amount.
Given that ads drive most of the company's revenue, it sorely needs to improve its mobile takings. Its second-quarter figures revealed that mobile users increased 67 percent year-on-year and hit a total of 543 million per month — but this doesn't seem to be directly translating into revenue.
For example, Zuckerberg revealed that by the end of June, Facebook's Sponsored Stories feature was driving around $1m in revenue per day, with a little over half of that coming from mobile. Doing some rough sums, 90 days at around half-a-million dollars per day is $45m. That isn't a whole lot of beans from more than half-a-billion monthly mobile users.
Facebook recently introduced 'Featured Stories' (a type of 'social ad') to the news stream on desktops and mobiles in a bid to monetise the mobile experience. But this won't be enough on its own to sustain significant growth.
This doesn't seem to have escaped Zuckerberg's attention. Soon after its floatation, the company rolled out new versions of its mobile apps for iOS and Android. And then three months of fixes for those apps.
"We have a lot of interesting things going on here. There are a lot of challenges, and these are the types of problems that we like to work on. We're working hard to staff up across the company, especially in the technical groups," Zuckerberg said in the recent financial call.
Let's be clear: I don't think Facebook is in any real trouble right now. But sooner or later, the rate at which it adds users will slow to a near standstill. At that point, it will have to work out how to cut costs and better make money out of every aspect of its business.
If a business with nearly a billion — 955 million — active monthly users can't work out how to make money effectively, alarm bells should be ringing.