October 23, 2012
After Disappointing IPO, Investors Prep For Facebook Earnings
Enid Burns for redOrbit.com — Your Universe Online
Things are turning around for Facebook, in terms of earnings, where investors have eyed the social networking site since its disappointing IPO last year. Those bracing for another letdown were met with a report of better than expected earnings.
To bring shares back up towards the IPO strike price of $38, Facebook has had its work cut out for it. The site has turned out products and offerings over the past few months aimed at generating revenue and recovery in the eyes of Wall Street. Products include the ability for Facebook users to send physical gifts and an option that lets users pay a small fee to promote their posts and gain more visibility, CNET reports. The question remains whether Facebook will be able to promote its standing and gain more visibility with investors.
While the new features will help Facebook's bottom line, it will take more than a fee-based product to promote posts to help rebuild Facebook's reputation on NASDAQ. "Most of these efforts won't trickle down to Facebook's financial results when the company reports its third-quarter earnings on Tuesday. Instead, investors will be looking for words of encouragement -- hopefully, with some specifics -- from Zuckerber and his chief lieutentants, COO Sheryl Sandberg and CFO David Ebersman," CNET says in its article.
Expectations were that Facebook would post a quarterly revenue of $1.23 billion and earn 11 cents per share. The company exceeded expectations slightly. Facebook reported adjusted earnings of 12 cents per share, and revenue of $1.3 billion, according to USA Today. That comes to 32% improvement over the same period a year ago.
Mobile is targeted as the biggest challenge, but also the biggest opportunity for Facebook. The company addressed its growing base of mobile users by tweaking its apps and working on products that will monetize the platform. Those include Sponsored Stories, or mobile ads that appear in News Feeds. This feature is available on both mobile and online, with mobile generating about half of the revenue.
Facebook also began offering developers the ability to buy ads specific to the mobile platform this quarter. The effort drives people to download apps, and developers pay for the opportunity. "This seems like a killer mobile ad unit," CNET quotes Brian Pitz, analyst with Jefferies & Company. "What developer wouldn't want to be able to buy downloads? Many would be willing to pay $2 to $5 per download, maybe much more."
Facebook also made improvements to its mobile ad network. This includes building its network to mobile sites outside of Facebook. The mobile ad network is touted as a way for Facebook to earn income without cluttering the News Feed.
Credit card purchases is one way Facebook hopes to become a sticky fixture in users' wallets. The company already has credit card information from those who play games and make micro-transactions. Facebook looked to grow the number of transactions by adding the above-mentioned ability to buy physical goods and the ability to promote posts. Facebook is looking to get people to make transactions more often, and it's those non-advertising revenues that many investors want to see.
"One thing that I'm looking for -- and it very likely won't be backed by any metrics on this call -- is any discussion of movement into non-advertising revenue streams," CNET quoted Jed Williams, senior analyst with BIA Kelsey, saying.