Facebook is preparing to release its first quarterly earnings report as a public company Thursday, in what amounts to the giant social network's first financial test since its controversial stock market debut this spring.
While experts caution against reading too much into one quarter's results, it's clear that many across the tech industry will be scrutinizing the company's performance for indications about its business model -- and for a guide to Facebook's future.
"This will set the stage for what they're going to do," said Brian Blau, an Internet industry analyst for the Gartner research group.
Facebook's stock still hasn't recovered from the steep plunge it took after its May 18 initial public offering. While its debut stock price of $38 gave the company a market value of $104 billion, its shares closed Wednesday below $30. A strong earnings report could restore some luster, analysts said, while a weak report could be devastating for investors.
"Given the rough start they had" with the IPO, Blau added, "I think not only investors but advertising partners, app developers and a variety of people that use the social network want to understand what it says for the health and well-being of Facebook."
Facebook has scheduled a conference call Thursday afternoon to discuss its spring-quarter results with investment analysts. Along with basic metrics such as revenue and earnings, analysts are hoping executives will address key issues including Facebook's growth rate and plans for building its advertising business, particularly in the area of mobile computing, to compete with bigger rivals such as Yahoo and Google.
"Facebook still has a lot to prove to advertisers -- particularly the big-brand advertisers, the ones that spend millions or even billions of dollars a year," said Debra Aho Williamson, social media marketing analyst at the eMarketer research firm.
The company hasn't said whether CEO and co-founder Mark Zuckerberg will speak during the call. While most chief executives do, it's not required.
Zuckerberg skipped some analyst meetings during the run-up to Facebook's May IPO, and his decision to appear at one Wall Street event in his trademark hoodie, rather than a shirt and tie, drew fire from critics who said he wasn't treating potential investors with enough respect.
Even if he does speak Thursday, analysts believe Zuckerberg may leave most of the talking to Chief Financial Officer David Ebersman and Chief Operating Officer Sheryl Sandberg. While Facebook declined to comment this week, the company is expected to announce second-quarter results that show the phenomenal growth of its early years is starting to slow.
With 900 million monthly visitors, Facebook last year brought in $3.7 billion in revenue, chiefly from advertising. A survey by Thomson Reuters found analysts expect on average that Facebook will report $1.15 billion in sales for its most recent quarter -- still a big jump from $895 million for the same period in 2011, but not nearly the 107 percent increase that Facebook saw a year ago.
Analysts say it's inevitable that as Facebook gets larger, it will grow more slowly than it did as a startup. The company also warned this spring that its advertising income was not growing as fast as its user base, largely because an increasing number of users are accessing Facebook on smartphones or tablets. Until this spring, the company did not sell ads on the mobile version of its network.
Facebook began selling mobile ads in March, however, in a "sponsored stories" format that features recommendations from users' friends. While the offerings are limited, early indications are that Facebook's mobile ads have a higher response rate than its desktop ads, according to Simon Mansell, CEO of TBG Digital, which advises companies on placing online ads.
In addition, during the last quarter, Facebook launched an advertising sales exchange that lets businesses target ads to users who have visited a company's website outside the social network. Facebook also is experimenting with selling ads outside its own pages, by delivering ads to the site of its online gaming partner, Zynga.
Experts say Facebook can offer advertisers two new and powerful tools: In addition to ads that show recommendations from friends, it can target ads to users' stated preferences, determined by their "likes" and other actions on the social networking site.
But these advertising models are still relatively untested, especially compared with the proven success Google has had in delivering ads targeted to users' searches on the Internet.
"Facebook is trying to reinvent advertising," Williamson said. "It's still pretty early days for knowing how effective these ads are going to be."
That's led some on Wall Street to predict Facebook will report relatively modest results for the quarter that ended in June, while expecting better performance in the future.
"We believe that Facebook is still scratching the surface in terms of monetizing user data," analyst Colin Sebastian of Baird Equity Research said in a recent report.
Joseph Bonner of Argus Research was more cautious. In a note to investors, he wrote: "We are reminded of past Internet booms in which eyeballs did not translate into earnings."
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