Facebook’s Worth $33 But Faces Tough Crowd In Earnings Next Week

Facebook (NASDAQ:FB) will be reporting its first quarterly earnings as a public company since its IPO in May. It generated more than a billion dollars in quarterly revenue last quarter with a major portion of it coming from social advertising. Soon after its IPO, its share price tanked primarily on concerns that it would be unable to monetize its rapidly growing mobile audience.

We currently have a $33 Trefis price estimate for Facebook, most of which is derived from advertising and virtual transactions businesses. It competes primarily with Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and Yahoo (NYSE:YHOO) in the online advertising space.Check out our complete analysis of Facebook

Social & Mobile Advertising

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Facebook offers a self-serve advertising platform for advertisers, which enables them to create text ad units and target them to users based on their social demographic data like age, sex, location, keywords, education level, workplaces, political views and relationship status. It is also rolling out new types of display ad units like custom fan pages, sponsored stories etc., which could turn out to be significantly more lucrative than search advertising going forward.

In the months following the IPO, it has made quite a few new launches which could help it attract more advertisers to its platform, and monetize its massive user base which could easily reach 1 billion monthly active users by the end of 2012. Facebook is working on a new real-time bidding platform for social ads, just like Google’s AdWords.

However, with mobile usage increasing as a proportion of its overall usage, Facebook’s social ad revenues will depend on how effectively it is able to monetize its mobile user base. We will be looking for signs of any decline in average ad revenue generated per user in the earnings call, as well as Facebook’s plans to address them. It is apparently working on location-targeted mobile ads as well as mobile ads targeted using app usage data. It has also made some significant acquisitions in the mobile space, including Instagram, Lightbox, Face & Spool, which indicate that it is focused on that as well.

Payments & Virtual Transactions

Facebook Payments and Credits also generate significant revenue for the social networking giant. Facebook Payments could become the default currency of the web going forward, given Facebook’s ubiquity and reach. Facebook is also working to simplify mobile payments for developers who use its Payments API. With carrier integrations and support for all the major platforms, it could easily generate a lot of revenue through Facebook Credits and Facebook Payments on the web and on mobile.

We could also see more light on how Facebook plans to leverage its dominance in the social space to become a leader in online payments.

Understand How a Company’s Products Impact its Stock Price at Trefis