Facebook is due to report its very first earnings report late Thursday, since going public in May, with most analysts expecting the social networking giant to post earnings of 12 cents per share on revenue of $1.16 billion in the second quarter. In all of 2011, Facebook reported a net income of $1 billion and revenue of $3.71 billion, according to regulatory filings.
Facebook shares dropped 9% to $26.50 in after-hours trading, after Zynga reported second-quarter profit and revenue that missed analysts’ estimates and slashed its bookings forecasts for the remainder of the year. In the first quarter, according to Facebook's S-1, the social network derived 15% of its revenue from Zynga.
Besides Facebook's earnings and revenue, analysts are interested in seeing growh in Facebook's monthly active users (or MAU).
"Facebook appears to have hit a Fundamentals Air Pocket, given its decelerating MAU growth (27% in ’12 vs. 48% in ’11), we don't want to see any continued softening of this number," wrote Mark Mahaney, analyst at Citi Investment Research, who has a $35 price target on Facebook. Facebook had 901 million monthly active users in the first quarter, according to its S-1.
Mahaney wrote that he'd consider MAUs in the 900 million to one billion range as a neutral factor and anything less than 900 million MAUs a negative.
Mahaney also notes that he's looking closely at "clear signs" of mobile monetization and evidence that advertisers are "aggressively engaging" with Facebook, as well as the development of new revenue streams.
Facebook doesn't break out how much it makes off its mobile service, but out of the $1.06 billion in first-quarter revenue generated, $872 million came from advertising and $186 million from payments (virtual goods, such as buying more poker chips on Zynga, or renting a movie).
With global social media revenue expected to reach $16.9 billion in 2012, up 43.1% from 2011 revenue of $11.8 billion, and social-focused advertising for this year to hit a whopping $8.8 billion, analysts want to see what chunk Facebook is holding onto.
Another big driver of revenue in the social world is gaming, between subscriptions and virtual goods, the social gaming revenue more than doubled between 2010 and 2011 and is expected to reach $6.2 billion in 2012.
People are going to be most curious to see how the social networking powerhouse has done on the advertising front. If Facebook has been able to show significant growth in the revenue brought in by its various advertising services, especially mobile, then this will be a positive.
The effectiveness of Facebook ads has been scrutinized since General Motors decided to drop its paid advertising on the network just days ahead of the company’s IPO. Studies on the effectiveness of Facebook advertising have also varied greatly and introduced more confusion than cohesion. Some reports state that most people don't use Facebook advertising venues properly, and some showing bad results, while others are showing growth overall. If you are unsure which is right, you are not alone.
"The specific challenge for Facebook is that it is only just now starting to try to monetize this mobile usage," wrote Mahaney in a note to investors. Since Facebook's current plan is to insert so-called "sponsored stories" — ads into people's mobile feeds.
"But it is very unclear how this will play out, how users will react to changes to what has been an ad-free mobile experience to date, and whether these ads will be effective on mobile devices," the analyst wrote.
Other indicators that will help support the advertising arm of Facebook will be how often and for how long users are on the platform. Last time we checked in with Facebook, just prior to its April IPO, Facebook claimed 901 million monthly active users and 526 daily active users.
Facebook has been banking on mobile as a way to show revenue and usership growth this quarter and, according to a quarterly report from ad agency TBG Digital, its getting at least one of those things right.
Last quarter, sponsored stories saw 53% more engagement than standard ads, and mobile ads had four times the engagement of Twitter ads.
The latest report from TBG Digital, released last week, stated that the cost per thousand impressions (CPMs) on ads on the social network increased by 58% compared to the same period last year and overall engagement also grew by 11%. This reversed the decline experienced the previous quarter.
While everyone will be combing over the results from Facebook, the company already warned investors before its IPO that Wall Street's expectations were too high and that they should keep the bar of anticipation reachable.
Of the more than 900 million MAUs, more than 488 million users were logging on via mobile device back in April. Facebook has not beaten around the bush when it comes to their mobile struggles and clearly lags behind the infrastructure of Apple or Google, with a lot of bugs being worked out on the go.
As part of the mobile strategy, Facebook has been doing its fair share of acquisitions and acqui-hires such as its grab of Instagram and the mobile-centric usership base it was built on.
Facebook has also had the challenge of bringing the Facebook experience and advertising with a much smaller screen space.
And with the Facebook advertising now with about five months under its belt, the company should be able to show just how successful (or not) that it has been.
What about the Zuck?
One of the biggest questions of all about the inaugural quarterly call is if the CEO and Founder, Mark Zuckerberg will be hosting the whole call, just chime in for a few sentences or will be absent entirely.
As with most firsts, the anticipation and questions swirl around how the usually subdued and private CEO will grapple with this very public address.