Later today, Facebook Inc. (NASDAQ:FB) will announce its Q3 earnings, the second quarterly earnings results since the social network giant became a public company. Facebook is expected to highlight some key segments of its business model, including the progress in mobile platform traffic monetization, as well as its largest merchant, Zynga Inc. (NASDAQ:ZNGA). Other up and coming business segments, such as the Search Engine, Facebook Gift Service, Promoted Posts, and FBX (Facebook Ad Exchange) are also expected to feature, as the social media company seeks to better its disappointing Q2 results.

Facebook Q3 estimates-Sterne Agee
Via Sterne Agee

Facebook Inc. (NASDAQ:FB) has been facing an uphill task in its efforts to penetrate the mobile app platform, which seems to be taking over from the traditional, web-based platform. The biggest quandary for the Silicon Valley company has been the number of ads displayed in the small screen mobile app platform, as compared to the web-based platform, which can display several ads without causing a problem for the user.

In August, the company overhauled its iOS app platform, with a goal of increasing the number of ads displayed, but still, the current number is not enough as compared to the desktop platform. Investors are anxious to see how Facebook will address the challenge during its Q3 earnings report, as confidence in the company’s stock continues to deteriorate.

Several analysts have released their estimates on Facebook’s Q3 results, with a majority settling level with consensus estimates, which suggests, a total revenue of about $1.223 billion and adjusted non-GAAP EPS of $0.11 per share. Morgan Stanley (NYSE:MS) equity research analysts differ with the consensus estimate (Reuters average), in terms of EBITDA, with their perceived 55.7%, as compared to consensus 53%.

Morgan Stanley analysts point out key investment risks in Facebook Inc. (NASDAQ:FB) as those associated with its mobile ad business, which they believe could take the company longer than expected before full traction is eventually forged. Additionally, the analysts also claim that Facebook’s ad pricing is below peers, and see the risk inherent in the company’s attempt to leverage across trillions of ad impressions. Furthermore, its likely success in ad targeting with its FBX faces the risk of antagonizing users’ right to privacy of information, and hence, must strike a balance.

The impact of (NASDAQ:ZNGA)’s negative Q3 preliminary results adjustment, as the company cited a decline in revenue from old games, compounded with a delay in releasing new games. Facebook Inc. (NASDAQ:FB) did play a big role in affecting Zynga’s revenue from its old and popular games, like the Farmville, in favor of new games. The social media giant changed the way game ads appear on the web-page platform, and now it seems certain, that Zynga will suffer the consequences.

Zynga, which accounted for 14% of Facebook’s revenue in Q2, including 60% of the social media giant’s payments revenue, will be impacted negatively by Facebook’s adversities. The company’s stock is down 50% from its IPO price of $38, and while Morgan Stanley analysts have an overweight rating, and a price target of $31 for the social networking market leader, the company leaves a lot to be desired in terms of value for investment in the near-term.

Many analysts believe that Facebook’s long-term future is bright, but it has to prove itself in the mobile ad campaign before its can think of challenging Google Inc. (NASDAQ:GOOG) in the search business, and Inc. (NASDAQ:AMZN), the king of eCommerce, with its Gift Service.

Disclosure: I hold No position in any of the stocks mentioned, and I do not plan to do so within the next 72 hours.