Facebook‘s first earnings call as a public company has been hyped in the business press like a summer blockbuster. It’s a shot at redemption, maybe the feel-good call of the summer. Or perhaps it will be another bummer, like the company’s May IPO.
Either way, there’s more drama around the call than usual, which makes it interesting even for those who don’t usually follow business calls. So if you’re a Facebook investor, a social media enthusiast or just someone who has time on their hands this Thursday afternoon, here are some things to watch for as you grab your popcorn:
It’s the Ads, Stupid
Facebook makes most of its money through advertising. Yet the company went public during an awkward time in which it was overhauling its ad formats. Back in February, Facebook introduced a slew of new ad products that were designed to get marketers to think differently about the platform. Instead of buying the usual display ads, Facebook pushed the idea of amplifying successful status updates to reach more potential customers.
Though some advertisers claimed success with the format, there’s far from a consensus. In fact, eMarketer released a report in June arguing that Facebook’s Marketplace ads — you know, the cheesy direct-response banners for weight-loss products and such — are actually where the growth is at. The report quotes another report from Capstone Investments that concluded, “In many cases large [consumer packaged goods] advertisers are seeing comparable ROI on self-serve ads [to those] they were achieving on premium ads and are allocating spend that otherwise would go to premium ads to self-serve ads.” eMarketer also believes that many advertisers held off on full-year 2012 buys because they wanted to see how Facebook’s Premium ad products would evolve. That might explain a drop in revenues for Facebook’s first quarter.
Overall, analysts polled by Thomson Reuters predict Facebook to report earnings of $302.8 million on revenues of $1.1 billion, which will be up about 5% from last quarter‘s $1.058 billion. Advertising makes up the bulk of that; last quarter $872 million came from ads.
Actually, It’s the Mobile Ads
A bigger concern for analysts perhaps is whether Facebook is successfully transitioning to mobile. The social network’s users are already migrating there. The question is whether Facebook can monetize the new format. In June, Facebook began letting advertisers run Sponsored Stories for the News Feed for mobile devices.
While the format is pretty new, early studies are showing an encouraging increase in click-through rates. However, if analysts put a lot of stock in those studies, Facebook’s stock price would not be in sub-$30 territory. Analysts are looking for a solid growth figure for mobile.
Subscriber Growth: You Know What Would Be Really Cool? A Billion
Facebook is set to announce a total of 1 billion users any day now. In fact, it could be today. The company has already claimed 901 million users in April, so the fact that it added 99 million users in three months isn’t that huge. However, the billion figure crosses a psychological barrier and would doubtlessly be a big deal in the press. Whether Facebook is actually at 1 billion remains to be seen.
The 1 billion aside, Facebook needs to counter reports that its growth is slowing. In particular, comScore found in April that U.S.-based unique visitors rose just 5% year-over-year to 158 million. Facebook users also spent more than six hours a month on the site, up 16%, but that compares to a 23% increase in 2011. While most would be happy with such growth, Facebook has positioned itself to Wall Street as a growth story, not a relatively mature industry player.
The Zynga Factor
Zynga on Wednesday reported a net income loss of $22.8 million for its most-recent quarter and revised its outlook for the rest of the year downward. The announcements prompted a 40% drop in the company’s stock in after hours trading, but also depressed Facebook’s stock by 6%.
Though Zynga blamed Facebook for the loss — “Our users did not remain as engaged and did not come back as often,” said John Schappert, Zynga’s chief operating officer. “Instead new games were promoted.” — the two companies are still closely linked. In February, Facebook announced that Zynga provides 12% of its revenues. The two companies may be trying to do the business equivalent of seeing other people, but their fortunes are still so closely linked that if Zynga catches a cold, Facebook sneezes.
What do you think? Will Facebook surpass expectations or will this be another anticlimactic event? Sound off in the comments.