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Thursday, May 2, 2013

Facebook CEO Mark Zuckerberg. Photo: Alex Washburn/Wired Facebook will announce quarterly earnings today

Facebook CEO Mark Zuckerberg. Photo: Alex Washburn/Wired
Facebook will announce quarterly earnings today, with investors scrutinizing how well the company is growing mobile revenue, what rates it’s charging for ads, and how quickly the company is piling up users and earnings.

The company’s near-term performance will color how Wall Street judges a financial pinch that is taking several quarters to unfold: Facebook’s new revenue lines are a long ways off while its costs are spiking right now. A string of new products in the first four months of this year — Graph Search , a new News Feed, and a mobile app suite called Facebook Home — are either trickling out to users slowly, lack advertising, or both as Facebook takes its time getting details of the products right. Facebook has said its costs, meanwhile, will rise 50 percent in 2013 as it hires aggressively.

“Aside from ads, I do want to temper near-term expectations a little bit on revenue lines coming from other areas, like Gifts or Graph Search,” CEO Mark Zuckerberg said during Facebook’s last quarterly earnings call, in January. “I think these can be big opportunities for us long term, but for the foreseeable future the most important thing for us is to continue building out great consumer experiences around these products.”

So Facebook will likely be sweating this summer as costs continue to rise and new sources of revenue remain distant on the horizon. The company’s best hope for taking the pressure off is to make plenty of money on its old revenue lines, i.e. its existing mobile and desktop advertising products, sold on stalwart Facebook app and website sections.

Analysts expect Facebook’s adjusted earnings to rise 30 percent to 13 percent per share, excluding charges related to stock based compensation. Revenue, meanwhile, is expected to grow 36 percent to $1.44 billion. But the number everyone has foremost in mind is percentage of revenue from mobile; analysts from Stern Agee and Goldman Sachs have estimated mobile will comprise close to 30 percent of Facebook’s sales, up from 25 percent last quarter and 14 percent the quarter before that.

Calors Kirjner of Sanford Bernstein, meanwhile, says he’ll be keeping a close eye on average price per ad in the U.S. Facebook has made headlines for expanding into ads based on offline shopping habits and activity on other websites rather than on social activity within Facebook; it’s not yet clear how these new ad types will affect Facebook’s profit margins.

If Facebook can’t keep revenue growing as quickly as the street would like, that will drive down the value of its shares and, in turn, the value of employee stock inventives, while ratcheting up pressure on the company to get more aggressive deploying ads, which are already an ongoing source of complaints from businesses and ordinary users alike. Zuckerberg swears that sort of pressure doesn’t affect Facebook’s decisionmaking. But it could still be a big bummer for the young company this summer.

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