What to Look for in the Facebook Earnings Report

The most highly anticipated earnings report this month will come July 26 when Facebook (Nasdaq: FB) releases its first results as a public company.

While the event won't garner the same kind of fanfare Facebook enjoyed leading up to its IPO, the projected numbers are already attracting a great deal of negative attention, and Facebook stock has fallen in the midst of some dreary expectations.

According to data from Bloomberg News, Facebook is forecast to report revenue of $1.16 billion, while profit is expected to have fallen 10% to 11 cents a share amid a slowdown in sales. The whisper number is for earnings of 12 cents a share.

Predictions for the company have been slashed in recent weeks as concerns of a slowdown in sales and user defections have increased.

Those cuts have weighed on Facebook stock. Shares on Tuesday slipped for the sixth consecutive day, eked out a small gain Wednesday, and were lower again today (Thursday).

"People are concerned about the growth profile. More risk is being reflected in the lower stock price," Benjamin Schachter, an analyst at Macquarie Securities USA Inc., told Bloomberg.

How Bad Will Facebook Earnings Be?

The recent stock slide come on the heels of a note Tuesday from Capstone Investments' Rory Maher who reported Facebook's massive user base dipped 1.1% in the last six months, citing an analysis of Facebook user data in more than 200 countries.

While Facebook had been boasting it is close to amassing a user base of one billion members, the fresh data shows the social networking giant will have to wait a bit longer to reach that milestone.

"Perhaps penetration in the U.S. is reaching maturity, which has implications for revenue growth and user growth. It's reason to be concerned," Maher said in an interview with Bloomberg.

In fact, the majority of analysts believe Facebook needs a facelift.

Chief among the heap of concerns is how the company will make money from mobile users, one of tech's fastest growing segments, and one area where Facebook was late to the game.

Late last month, Barclays' analysts were downright bearish.

"Facebook does not derive any meaningful revenue from its increasing mobile usage, and its ability to do so going forward is unproven,, " they said in a note to clients.

And then there is Facebook's valuation, which even for a tech company is lofty. Currently trading at 56 times 2012 earnings, that's a rich multiple no matter how you look at it.

Staying in the Lead

As the leader of social networking, being number one comes with unique set of obstacles. While Facebook's member count dwarfs rivals, staying at the apex is never easy. Google's social networking platform Google+ is gaining traction and users.

Facebook is strategizing how to attract more users, how to keep users interested and how to keep them coming back for more. The company is mulling ways to allow children younger than 13 to join, and there are talks that Facebook is working with Australia's Commonwealth Bank on a banking app.

While Facebook works on privacy issues and retaining the trust of its users, it needs to work on gaining the trust of shareholders.

Its unofficial motto is "Move Fast and Break Things." But Facebook stock is not yet a bull in a china shop, or a bull on Wall Street.

Facebook stock reached a low of $25.52 on June 6, and have managed to claw back some to its current $28.87. Still, that is a near 26% drop, a far cry from its debut price, and a good deal lower than the high of $45 hit on its first day of trading.

Option activity has picked up recently with most interest in the July 28 and 30 strikes. Not too much to get excited about given Facebook's present price.

Facebook earnings will be released after the close July 26 with a conference to follow at 5 p.m. EST.

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