Black and White Program

Facebook’s first earnings call as a public company

July 12th, 2012 by Steven Barnes

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Thursday, is Facebook Inc.’s much anticipated first earnings report as a public company.  With an IPO that generated a bit of controversy – to say the least – the social media marketing firm’s earnings report will be under the watchful eye of millions, including those critical of the firm. Questions over its online advertising business and mobile strategies and how the company plans to grow revenue streams and profits in those areas will be under the magnifying glass. In the first quarter, Facebook’s revenue declined from the final quarter of 2011, although up from the prior year.  In May, big hitter General Motors $GM pulled $10 million of ads from the social network just prior to the IPO with company officials stating they had no evidence that ads on the site caused people to buy more cars.

The mobile site, where advertising space is limited, will be of particular interest regarding revenue strategies.  In a device world that continues to expand towards mobile, an effective strategy to profit from mobile is critical to Facebook’s growth, given that as many as 50% of Facebook’s users access the site via mobile devices.  With the IPO projecting a $100 billion valuation, the pressure for revenue growth is substantial.

The mobile user base is a hot bed of interest also because, just prior to Facebook’s IPO, the company disclosed in a regulatory filing that its mobile-user growth numbers were outpacing its growth in ads. This is problematic because little or no ad revenue is generated from the mobile side. It was controversial because analysts from the multiple banks who underwrote the IPO were instructed to alter their outlook for the company’s revenue prospects based on the new information.  This would have been fine except that those revenue projections were not shared with the public, leading to doubt about the fairness of the IPO process for individual investors.

Key information to examine from the earnings report will be 1) user frequency (daily and monthly visits) of the site, 2) percent of mobile users, 3) and strategies for growing revenue over the estimate 901 million users (526 million daily) Facebook claims to have.

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