The Exchange

Facebook Earnings: It’s About More Than Mobile

The Exchange

By Marek Fuchs

When looking toward Facebook (FB) earnings, will mobile be the whole media story?

CNBC

In a frenzied week of reports including big players such as McDonald’s (MCD), Apple (AAPL) and Netflix (NFLX), the social-media giant now stands on deck, due to report after market close on Wednesday. According to FactSet, analysts are expecting earnings of 14 cents per share on revenue of $1.62 billion.

Mobile has been a keen focus for the media when it comes to Facebook, ever since its pratfall of an IPO in the spring of 2012. This focus only intensified last week with Google’s (GOOG) mobile-driven earnings disappointment.

And in the run-up to Facebook earnings, the mobile story has been key for the media. On Monday the Associated Press cast their eyes upon Facebook’s coming report and declared: Eyes on mobile for Facebook's 2Q. In just two sentences on the subject of Facebook’s earnings, The Wall Street Journal managed to reference mobile three times, noting, “Investors will be scrutinizing Facebook Inc.’s mobile ad revenue and its mobile-user numbers as the world’s largest social network reports its latest results on Wednesday. Analysts expect Facebook’s push into the mobile market to help drive double-digit revenue and earnings growth.”

Mobile brings massive change

The logic that mobile is very important to Facebook is, of course, not wrong. Mobile computing has, to be certain, brought about massive change in the tech industry. Corporations including Microsoft (MSFT) and Dell (DELL) — once so dominant — are now in large measure dormant, in part because of mobile. Yes, the era of big desktop is over.

Last year’s second-quarter report, Facebook’s first as a public company, was a disappointment in part because the company was adapting to mobile with what the market perceived as underwater speed. But then, in Facebook’s first-quarter of 2013, the company earned nods of approval on Wall Street by reporting 751 million monthly mobile visitors, up 54% from 2012’s first quarter. Better yet, nearly a third of Facebook's revenue came from mobile, ahead of the previous year’s pace and expectations.

Many are assuming evergreen growth for mobile as a whole. And who knows? It might just happen. eMarketer, an industry research firm, says U.S. mobile ad spending will hit $7.65 billion this year, up from $4.36 billion in 2012. Growth, they say, will hit $27.13 billion by 2017.

While that may seem like a reason to stand and cheer, note that the era of triple-digit growth, at least according to the forecasts, is already over. Besides, who can forget the way research outfits such as Jupiter and Gartner made outsized predictions in the 1990s for whatever hopped-up trend was the latest industry fixation, all without a seam of doubt? Sure, mobile seems substantial but don’t assume any $27.13 billion prophesies are set in stone. Even if the numbers prove prescient, will the mobile industry stay consolidated in a way that favors big players such as Facebook? Or will it trend more toward search, which favors Google? Or display, Facebook’s purview?

Mobile, however, simply isn’t the whole story. Pay attention – even if the media does not – to the entire tale of Facebook, which includes:

- Will Facebook gets its guidance groove back? Facebook has not provided earnings or revenue guidance for the quarter. As is often the case in this circumstance, the company turned less talkative when under duress. Guidance this go-round would be a good sign.

- Facebook’s foray into emerging markets, where smartphones are far less prevalent, once seemed fairly hopeless. But a recent announcement that a scaled-down app helped attract millions of emerging-market users with modest phones sparked a legitimate hope that Facebook’s international growth – a key factor, as penetration in the United States is so high – might come through.

- Instagram’s standing. Can Facebook hold onto younger users – who are turning increasingly to fresher communication methods such as Snapchat – with Instagram? It's the ultimate in open questions. Anyone who tells you they're operating on anything more than a hunch on Instagram, which Facebook purchased last year for a final price tag of more than $700 million, is delusional. That's how fast the field is moving. In an attempt to compete with Twitter and Vine, Instagram, which has well over 100 million monthly users, recently added video. Will this be popular with consumers and, if so, throw off more than a thin dime? Only time will tell if Instagram will give Facebook a footing in a new corner of the social media world, or become a latter-day MySpace. Look for any and all indications.

Social media – and mobile – are still in the larval stage. There's no telling which way the industry will tilt next. In that sense, new initiatives – even if they don’t currently rise to the level of anything more than non-revenue-producing experiments – take on outsized importance. Targeting ads, for example, is a work in progress but, with a nod to how mobile is just part of the Facebook story, keep your eyes peeled for what might – or might not – be next.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.

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