Facebook's dismal earnings report: Proof that its bubble has popped?

The social network's slowing growth disappoints investors, and its stock price slides to an all-time low. Is the party over?

Facebook
(Image credit: Marc Tirl/dpa/Corbis)

On Thursday, Facebook published its first earnings report since becoming a publicly traded company in May, and things got ugly very quickly. The social network's stock tanked in after-hours trading, losing 12 points, and its slide continued unabated on Friday, falling below $23 to an all-time low. The company reported a quarterly loss of $157 million, and even when adjusted for IPO-related costs, Facebook's profit was a mediocre $240 million. (By way of comparison, Apple just reported a quarterly profit of $9 billion.) Investors were particularly concerned about Facebook's revenue, which was up 32 percent from the previous year, but down from the larger year-over-year gains the company had reported in previous quarters. Furthermore, on the earnings call, Facebook was unable to satisfactorily articulate a strategy for earning advertising dollars from mobile devices, which are quickly becoming the main internet platform by which people interact with one another. Has the Facebook bubble burst?

Yes. And the fallout will spread throughout the tech world: The hype for Facebook has collapsed, a sign "that the second internet bubble is over," says Nathan Vardi at Forbes. The internet economy has changed drastically since Facebook first made its mark — most notably with smartphones — and that's why "many of the hottest tech companies touting social networking attributes" have been "stock market disasters." The "steep and rapid decline of the stocks" of Facebook and other tech companies — such as Zynga and Groupon — are reminiscent of the great internet bubble crash of the late 1990s.

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