There’s no sugar-coating it: To date, the Facebook (NASDAQ:FB) has been a huge disappointment.
Facebook investors had a glimmer of hope: After hitting a low of $25.87 on June 5, the stock enjoyed a nice rally — but one that was short-lived. The stock has since backed off and now is trading at $28.42, still 25% off from its opening day. Weighing on investors is Facebook’s second-quarter earnings report, which will be released after the bell Thursday.
And despite the drop-off, Facebook still is trading around a hefty 70 times earnings, which means the company could be vulnerable to further selling if the earnings report is a bust.
So what should investors be focused on when Facebook reports Thursday? Here’s three things to look at:
Revenue
No need to point out why this is important to investors. During the past year, Facebook has experienced a deterioration in the revenue growth rate.
Why the weakness? Primarily, users’ rapid shift to mobile usage — an issue that has plagued other social companies, such as Zynga (NASDAQ:ZNGA). The budgets for mobile advertising still are in the experimental phase, and Facebook has lagged in putting in place systems to monetize mobile traffic.
For the second quarter, the Street is expecting Facebook to post a 30% increase in revenues to $1.16 billion — down from 45% growth in Q1. A disappointment in already-lower expectations could significantly weigh on FB.
Ad Effectiveness
One of the IPO-killers for Facebook was news that General Motors (NYSE:GM) said it stopped buying ads on the social network. The automaker believed they simply were not effective.
While rumors have popped up that GM might resume buying ads, Facebook still must address this topic on the conference call. It would be helpful if the company can show some case studies of how major brands are getting lots of traction, such as by using innovative ad approaches like “sponsored stories.”
The Zuckerberg Factor
CEO Mark Zuckerberg took a lackadaisical approach to the IPO roadshow and only appeared at a couple presentations, and it’s likely he will do the same on the conference call.
This would be a huge missed opportunity. Zuckerberg has absolute control of the company and is core to the company’s product strategy. If he could provide some details on his plans, especially for mobile, it would be appreciated by investors and it would help the company rebuild some credibility.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to IPO. Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.
