Facebook Earnings Preview: Will Investors "Like" Q4 Earnings?

Facebook (Nasdaq: FB) stock has staged an impressive rebound in recent months after the company's disastrous IPO.

Since mid-November, the social networking giant's stock has gained more than 68%, going from a near-low of $19 to more than $32.

Investors will be watching closely when Facebook releases Q4 earnings after close tomorrow (Wednesday) to see if the company can maintain its momentum.

Expectations are high, as a bevy of analysts have upgraded their outlooks for the stock, though it is still trading well below its IPO price of $38 and its high of $42.

Wall Street projections are for Facebook to report earnings of 15 cents per share on revenue of $1.52 billion.

What Will Investors Be Looking For?

Much of the focus tomorrow will be on how much traction FB has gained in the growing mobile arena.

The Menlo Park, CA-based company must show it is successfully stashing cash from its increasing mobile audience, now numbering more than 600 million, as well as earning money from new programs launched over the past several months.

Investors will be hanging on every word regarding the company's yet-to-be-launched Graph Search, a kind of curated search tool FB hopes will produce additional revenue.

The commercial potential for such a tool could handsomely reward Facebook. While the tool remains in its infancy, its prospects look promising.

Internet trollers conduct billions of searches daily on rival sites like Google (Nasdaq: GOOG), Yahoo (Nasdaq: YHOO) and Microsoft (Nasdaq: MSFT).

Facebook, which has 1 billion users, has said it's not going after Internet search giant Google with Graph Search, but it sure looks like FB's doing just that.

The financial stakes are high for Graph Search.

According to eMarketer, in 2012 Facebook earned $4.2 billion from advertising, amounting to 84% of its estimated total revenue, led by mobile display. Facebook garnered roughly 18% of the U.S. mobile ad market last year, more than the 17% earned by Google.

But a mobile version of Graph Search will take "years and years" to develop, Facebook CEO Mark Zuckerberg has said.

Another new FB program, the Instagram photo-sharing app, has been under scrutiny because of the company's controversial privacy policy for the app. Investors likely will focus Wednesday on word of any decline in Instagram user activity or defections.

Why Analysts are Bullish On FB

Facebook is likely to benefit from two trends in advertising: the shift from offline to online advertising and the growing role of interactive social media in online advertising, analysts Arvind Bhatia and Brett Struser say.

In a note to clients, the two analysts maintain Facebook should be an essential holding in Internet portfolios.

And on Monday, analysts at Sterne Agee reiterated their "Buy" rating on Facebook in anticipation of strong Q4 results. The firm predicts a 75% increase in sequential mobile revenue growth, an area key to Facebook's financial success.

The fresh nod of confidence from Sterne Agee comes on the heels of a handful of recent upgrades.

Raymond James (NYSE: RJF) analysts just boosted their rating on Facebook to an "Outperform" from a "Market Perform" and set a price target of $38.

"We continue to like Facebook shares and view the company as arguably the most under-levered name in the Internet sector," RBC wrote in a research note.

Topeka Capital recently upped its rating on Facebook to a "Buy" and increased the price target to $40.

In addition, Cantor Fitzgerald just reaffirmed its "Buy" rating.

The upgrades bring the tally of investment analysts who have a "Buy" on Facebook shares to 24. Two analysts have issued an "Overweight," 13 have a "Hold" rating and just one slapped a "Sell" on shares. The mean consensus is an "Overweight" with an average price target of $32.42.

Options trading heading into Wednesday's earnings report shows numerous bullish bets have been placed. Activity has been particularly strong in the February $33 calls, suggesting investors are wagering shares will trade up after the earnings release.

Also of note is the marked decline in short interest. The number of Facebook shorted shares fell by nearly 1 million from Dec. 31-Jan. 15. But, more than 25 million shorted shares are still outstanding.

Even with shares now down approximately 20% from FB's debut, they aren't cheap. According to S&P Capital IQ, Facebook has a market value of more than $65 billion, and trades at 158 times trailing earnings. By comparison, Google, with a market cap of $246 billion, trades for just 23 times earnings.

In early-morning trading Tuesday, shares of FB were lower by 2.63%, last changing hands at $31.61

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