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The Next Way Facebook May Upset Wall Street
the wake of Facebook’s botched initial public
and subsequent stock decline, pressure is building
CEO Mark Zuckerberg to post solid results when the social giant reports second quarter earnings on Thursday.
With Zynga’s massive second-quarter earning’s miss, investors
Facebook are fretting.
The social gaming company reported a quarterly loss of $22.8 million
gamers spent less time playing Zynga’s household-name offerings
Farmville and Mafia Wars. Worse yet, Zynga lowered its outlook
the rest of the year, citing myriad challenges to growth, including mobile.
Zynga shares are reeling
the negativity, hitting a fresh low Thursday and
some 70 percent since it’s December IPO.
The numbers sent Facebook shares plunging as
, ahead of the social network’s first-ever earnings announcement as a public company. That’s because Zynga is responsible
some 12 percent of Facebook’s annual revenue — a growing percentage that is nearly Facebook’s sole income
its payments platform.
For Mark Zuckerberg, a 29-year old wunderkind who’s had a notoriously ‘disruptive’ relationship with Wall Street, impressing investors after a weak pre-IPO outlook likely won’t be an easy task.
The first potential stumbling block: Accounting.
The company will incur a massive charge
it lifts restrictions on employee stock in conjunction
its second-quarter IPO. The company has warned that those could result
nearly a billion dollars in added expenses — a sum nearly equivalent
the $1.15 billion in revenue the company is expected to report in Q2,
to analysts polled by Thomson Reuters.
That accounting item,
as an “RSU” (restricted stock unit) expense, is a common headache
newly-minted public companies, particularly for technology startups
use stock incentives as a key recruiting and retention tool.
This is
another area where Zynga hasn’t set a positive precedent. On Valentine’s Day, Zynga rang in its first earnings
a public company with a crushing blow in the form of a $500 million RSU charge — an item
contributed to a net loss of more than $400 million. Though the funds had been earmarked
Zynga’s S-1 filing, investors were caught off-
by the charge: Shares of the newly public company sank roughly 17 percent following
results.
While an RSU-related charge could severely impact Facebook’s earnings, it’s a
-time item at the bottom of many analysts’ lists of concerns, as larger and longer-term worries linger
the company’s ability to monetize its user base and maintain growth.
Adapted and abridged from: CNBC, July 26, 2012.
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