The past couple weeks have been terrible for tech operators — just ask IBM (NYSE:IBM), Google (NASDAQ:GOOG) and Intel (NASDAQ:INTC). So, might the problems spill over to social network companies like Facebook (NASDAQ:FB)? We’ll find out soon because Facebook reports its earnings after the market closes today.
Consider that investors have already been pricing in a weak quarter. Since late September, shares of Facebook have gone from $22.86 to $19.43.
One big concern is that there will likely be a flood of selling. That’s because on Thursday, the lockup on 225 million shares will expire. And yes, it seems likely that many employees will want to take money off the table. Hey, it’s not cheap to live in Silicon Valley.
Then there’s the issue of the social gaming business. Zynga (NASDAQ:ZNGA) represents about 14% of Facebook’s revenues. But the gaming company recently announced a warning, and the stock price plunged. Might this category be a fad that’s rapidly fading? That could be a real possibility.
But the biggest issue for Facebook is the core advertising business. While it’s a global player in the mobile market — with over 500 million active monthly users — the company has struggled to monetize that mobile traffic. After all, it’s not easy placing an effective ad on a smartphone’s screen without aggravating users.
Yet Facebook has been getting innovative with its approaches. For example, it now allows the placement of “Sponsored Stories” in News Feeds. These are essentially testimonials from users about products.
Facebook also recently launched a gift system, which makes it possible to send physical items to friends, such as flowers or gift cards from Starbucks (NASDAQ:SBUX).
As for the expectations, Wall Street is looking for earnings of 11 cents a share and sales of $1.2 billion, up from $954 million in the same period a year ago. All in all, the numbers seem fairly tempered and appear to have factored in the negative trends. So, if Facebook reports much better traction from its mobile business, the stock could pop — at least a temporarily.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.