Facebook will report its first-ever quarterly earnings as a public company later today, and already investors are showing their concerns. Instead of buying on the rumor and selling on the news, traders are doing just the opposite, knocking shares of Facebook down more about 7 percent in midday trading.
The stock, now just above $27 a share, is about 29 percent off its initial public offering price of $38 a share -- a price that it has not seen since its IPO opening. Given the stock's lousy post-IPO performance, investors aren't going to cut Facebook slack. They want to see solid numbers.
It certainly isn't helping that online game developer Zynga, which built its business on Facebook's platform, reported a dismal quarter yesterday. In Facebook's first quarter, reported before its May IPO, the company said that roughly 15 percent of its revenue came from Zynga games. Facebook gets a cut of the payments from virtual goods that Zynga sells people who play its games, so any slowdown for Zynga will hit Facebook's bottom line.
The rest of Facebook's revenue comes from advertising. And that, too, is a bit of a wild card. There's been plenty of debate about the power of Facebook's ads, and today we will see just how effective they are and what impact the tough economy is having on the giant social network. Analysts expect Facebook to post a a profit of $302.8 million on sales of $1.1 billion.
Perhaps even more important will be any indication that Facebook is making progress in figuring out ways to make money from mobile users. More than half of Facebook's 901 million users access Facebook from smart phones and tablets, and tackling its mobile problem is CEO Mark Zuckerberg's top priority.
Facebook in March added so-called sponsored stories (ie, ads) to mobile news feeds in March, so that they show up to a brand's fans and their Facebook friends. While there is evidence that those ads are more effective than Facebook's desktop ads, we still don't know how many Facebook is selling and what kind of money it's making from them.
Beyond that, investors will want to know what other ways Facebook is looking at to make money from mobile. The company has some of its best people working on this, and while there are hints of new directions Facebook could head towards, based largely on acquisitions it's made, so far it's largely a guessing game.
Another open question: Will Zuckerberg himself participate in the conference call with analysts? Zuckerberg got criticized for blowing off meetings during the IPO road show, and given how badly the stock has performed, it would be wise for the CEO at least to make an appearance.
Tune in: CNET will be live blogging the call, starting at 2 p.m PT. Come back here and join us.