What to Expect on Facebook’s Second Quarter Earnings Report


What to Expect on Facebook’s Second Quarter Earnings Report

Prior to the initial public offering, Facebook Inc (NASDAQ:FB) took the center stage of Street conversations, due to high expectations. The social network giant continued to capture analysts and media attention after its disappointing IPO on May 18. The company offered its stock at $38 per share. On day one, its shares closed just above its offering price. The following trading days until today, Facebook stock is trading between $28 to 29 dollars per share. Its $100 billion valuation is now dropping in shareholder’s views.

The company’s stock value was negatively affected by several factors including the Nasdaq system glitch; a lawsuit filed by shareholders against the company, its CEO Mark Zuckerberg, Goldman Sachs Group, Inc. (NYSE:GS), and JPMorgan Chase & Co. (NYSE:JPM). Investors alleged that they did not disclose to all investors information regarding the “severe and pronounced reduction” of revenue growth forecasts before the company’s IPO. Facebook has also filed a lawsuit against Nasdaq because of the damages, caused by its technical failures, to the company.

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Investor’s confidence on the company’s profitability collapsed, and they are not convinced that the company is worth $100 billion (original valuation). Currently, the Facebook’s valuation is around $60 billion.

On Thursday, Facebook will report its second quarter financial report. Analysts expect the company to report earnings of 12 cents per share or $1.15 billion. Will the company meet Street expectations? Most analyst believe that the social network giant will meet or beat their expectations. According to Michael Pachter, an analyst from Wedbush, who said that Facebook Inc (NASDAQ:FB) will be able to meet analysts expectations, because the company reduced its estimates in its revised Form-S1 filing last May 9. Facebook cited that the growth of mobile usage poses possible negative impact to the company’s financial results. This prompted analysts to lower their earnings expectations on Facebook. Pachter believes that the social network giant will achieve Street expectations.

During an interview with CNBC today, Pachter said that it is important for Zuckerberg to be present during Facebook’s earnings conference as CEO of the company. According to him, analysts and investors are expecting him to show up, and tell them that he cares. Pachter does not expect Zuckerberg to participate during the Q&A.

Mark Mahaney, analyst from Citi Research, projected that Facebook’s revenue growth to decline by 25 percent year over year, compared with its 45 percent year over year growth during the first quarter. Mahaney cited the weak ad display in European market and the increasing number of users accessing Facebook on mobile has caused the company’s revenue growth to slide.

CNET’s Larry Dignan speculates that Mark Zuckerberg will not say much during the company’s earnings conference call. Sheryl Sandberg, Chief Operating Officer, and David Ebersman, Chief Financial Officer, of the company will do the talking. For sure, Facebook will be flooded with questions by analysts and the media.

Facebook will definitely discuss many things during its earnings reports including the strategic advertising alliance and resolution of patent dispute with Yahoo! Inc. (NASDAQ:YHOO), acquisitions of Instagram and other companies, purchase of AOL patents from Microsoft Corporation (NASDAQ:MSFT), introduction of APP Center, and many other issues.

Jed Williams, senior analyst from BIA Kelsey, said that Facebook has been busy during the past months, and acquired different companies in different areas, but unable to make profit out of it within three months. He compared Facebook’s acquisition as a puzzle. He said, “Right now, it feels like a lot of individual pieces, but there must be a bigger puzzle in mind.”

In my point of view, Facebook’s upcoming earnings report is also a puzzle. People have many questions in mind. The biggest question is, now that Facebook is a public company, will it be able to develop and execute effective and strong strategies to pull the company up? Will it be able to maintain a strong growth?

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