Who would have thought that a year after its IPO, Facebook (FB) would continue to remain in a funk?
Whether or not you saw it coming, that’s the tough reality. The stock is down about 2% year-to-date, while the broader market has climbed just under 19%.
In the last month, though, Facebook has been right on pace with the market’s gains. And after the bell today, it will report its second quarter earnings — an opportunity to get things back in gear. Wall Street is expecting revenues of $1.62 billion, which would make for a 37% year-over-year increase. As for earnings, the estimate is 14 cents per share vs. 12 cents in Q2 of 2012.
Of course, it’s about more than just numbers, as investors certainly have lots of questions. Let’s take a look at a few — including the one that remains the biggest question of all.
Product Roadmap: First of all, there’s the issue that Facebook has been on a dry spell for the most part. Many of its new offerings — like Home, Camera, Graph Search and Gifts — have been duds. Mark Zuckerberg will need to provide some encouraging news, whether that some of these products are showing signs of life, or that a new game-changer is in the works.
Competition: That’s no easy feat as the social space gets increasingly crowded — especially in the mobile chat arena. One of the players that has been particularly troublesome is Snapchat, which goes against Facebook’s core philosophy of open sharing by limiting the number of friends to send messages, photos and videos to — and, of course, destroying its content within ten seconds! As a sign of the app’s success, the company recently snagged $60 million in funding. As for Facebook, it’s rival product, Poke, has been a dismal failure.
Video: In response to Twitter’s highly successful Vine mobile app, Facebook has fought back. The company recently launched a short-form video function in Instagram. Wall Street will definitely want to see evidence that it is getting adoption from the massive user base, and will want to get a sense of the revenue opportunity. After all, Google’s (GOOG) YouTube has shown that the online video can be quite lucrative.
Mobile: Last but not least, expect to hear this word a lot on the conference call. Wall Street is forecasting that about 33% of Facebook’s revenues will come from mobile, although investors may want to be less optimistic. Just look at Google’s Q2 results. While mobile traffic was strong, revenues were on the light side since mobile ads tend to get less revenue per click. The industry is still in the early stages and advertisers are trying to figure out the best approaches.
What does all this mean? Well, first things first, I’d say it’s probably best to hold off buying Facebook’s stock ahead of its earnings report. While the company seems to have made a fairly smooth transition to mobile, that comes with its own set of challenges. Plus, it’s ominous that Facebook can’t seem to produce interesting products.
Ironically enough, Yahoo (YHOO) appears to be much more innovative now, as it has launched several cool apps and has been aggressive with its acquisitions. It really shows how quick the tech industry can turn.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.