If there's one thing that Mark Zuckerberg has learned in Facebook's short life as a public company, it's that Wall Street is an unforgiving place.
The Street cares little about wide-eyed talk about making the world a more connected place. Even Facebook's recent announcement that it now has 1 billion users -- roughly a seventh of the world's entire population -- logging onto the social network at least once a month did nothing to help the stock, which now trades at about half its IPO price of $38 a share.
Wall Street, in short, wants to see the money.
It seems that Zuckerberg has gotten the message. In recent months, Facebook has rolled out product after product aimed squarely at boosting Facebook's bottom line -- from letting members send friends physical gifts to giving them the option to pay $7 to promote their posts to their Facebook friends and subscribers. Most of these efforts won't trickle down to Facebook's financial results when the company reports its third-quarter earnings on Tuesday. Instead, investors will be looking for words of encouragement -- hopefully, with some specifics -- from Zuckerbrerg and his chief lieutenants, COO Sheryl Sandberg and CFO David Ebersman.
As it stands, Wall Street expects Facebook to post quarterly revenue of $1.23 billion and earn 11 cents a share. While that would be an almost 29 percent revenue jump from the year earlier quarter, Facebook's growth is slowing. And clearly investors are jittery: Google's earnings miss last week emphasized the challenges from the weak economy in Europe (also a potential problem for the ad-driven Facebook) and just how fast the shift to mobile is occurring (ditto on the problem front). Shares of Facebook have fallen more than 13 percent in the last few weeks.
The mobile 'opportunity'
When Zuckerberg took the stage at a TechCrunch conference in September, he reframed the discussion about Facebook's mobile problem with the skill of a smooth politician. Suddenly, Facebook's biggest challenge became a great way to "make a lot of money." And he has since talked about mobile as Facebook's "massive opportunity." Opportunity or problem, it's certainly a reality, with roughly 600 million of those 1 billion users accessing Facebook via their smart phones.
So what's been going on with mobile and money? The biggie on this front is Sponsored Stories -- Facebook's euphemistic term for the mobile ads that show up in News Feeds of a brand's fans and their friends. This effort should come with a dollar sign attached to it. During the second-quarter earnings call, Zuckerberg said that as of late June Sponsored Stories were generating about $1 million a day, with half of that coming from mobile. That would give Facebook about $182 million in annual mobile revenue, a strong start for sure.
But the company has been pushing hard on this front, and by now that figure should be bigger. In August, for instance, Facebook began a test in which brands can pay to have their sponsored posts show up in Web and mobile News Feeds of Facebook users who have no connection to the brand. That was a surprising move, given Zuckerberg's concern for not cluttering up people's News Feeds. But now that he has investors and employees to please, something's gotta give. Let's hope Zuckerberg sheds some light on the money behind all this -- and, importantly, on whether users are getting irked by all these ads.
Facebook has gone even further with its push for money from mobile. Consider:
- App ads for all. In August, Facebook began letting some developers buy ads in mobile News Feeds as a way to drive more people to their apps. Last week, which was already into the fourth quarter, it opened that up to all developers, so clearly the company sees promise here. "This seems like a killer mobile ad unit," says Brian Pitz, an analyst with Jefferies & Company. "What developer wouldn't want to be able to buy downloads? Many would be willing to pay $2 to $5 per download, maybe much more."
- Mobile ad network. Just before the quarter ended, Facebook began testing a mobile ad network through which it's selling ads that appear on apps or mobile sites you visit outside of Facebook, which is certainly helpful on the not-cluttering-up-your News Feed front. The ads are targeted based on your Facebook data, just as Facebook is doing with Web ads on Zynga.com. Facebook has been mum about this to date, and I wouldn't expect much detail since the effort is nascent. But this a big opportunity. Just look at Google's AdMob, which Pitz expects to generate as much as $2 billion in revenue this year.
One word: Plastic
Facebook has also been hard at work trying to get your credit card on file (beyond those it has from people playing games) with two recent features -- the ability to send gifts to friends, and the ability to pay to have your post featured atop people's News Feeds. The first one has promise, with Facebook watchers pointing to it as evidence of the company's inevitable march into commerce, but thus far -- survey says -- the second one is a dud.
Either way, both are too new to add up to much, although I expect some questions -- and hopefully answers -- about the prospect of Facebook and commerce. Not just with Gifts, which Facebook is now making money from, but the just-launched Facebook Collections, which lets you collect images and buy of products from seven retail partners, although so far Facebook isn't taking a cut. There's also Facebook Offers, a way for merchants to send Groupon-like deals to your News Feed and which Facebook just started charging businesses for in September.
"One thing that I'm looking for -- and it very likely won't be backed by any metrics on this call -- is any discussion of movement into non-advertising revenue streams," said Jed Williams a senior analyst with BIA Kelsey, a research firm focused on interactive media.
It's easy to see how many of these new products could fit together, especially with Facebook now out to prove itself as a mobile-first company. On mobile, Facebook knows your location and, for example, what restaurants you like, making the Offers potentially powerful. Remember, too, that Facebook in the spring bought the startup TagTile, a mobile-based customer loyalty business that offers local merchants a Square-like device for customers to tap on with their phone when they check out.
Yet even with all these new efforts, this is an incomplete rundown. And at this point, it's hard to accuse Zuckerberg of not paying enough attention to the business side of things. More immediately, Facebook needs to show that it's not getting too hurt from Zynga's problems (Zynga provided more than 15 percent of Facebook's revenue in the second quarter) and, above all, that its ad business is healthy and growing.
June brought the launch of Facebook Exchange, which lets advertisers better target users on Facebook by tracking what else they do across the Web. The system has won praise from ad partners such as Triggit, who say Exchange has made their ads on Facebook far more effective, so expectations are high on this front. And this naturally leads to ongoing speculation that Facebook will create its own third-party ad network that, through Facebook Connect, would tap into your social connections to sell targeted ads across the Web.
The problem, of course, is that many of these opportunities -- like the promise of Facebook getting into search -- take time to build out. And patience isn't something Wall Street has at the moment, especially when it comes to Facebook.