Facebook (FB) reports its second quarter 2013 earnings after the bell on July 24. There’s no question Facebook is the biggest social networking platform in the world, and possibly the most influential website on the entire Internet. But the question has always been “how does this monetize?”
Facebook has been focusing on their expanding mobile user base, and especially mobile advertising, as for the first time last quarter mobile users outpaced traditional users. The question is whether this is enough to offset increased spending. The first quarter of 2013 saw Facebook increase spending at a rate that alarmed investors, as it is unclear if they will be able to recoup that.
The company has also faced stiffer competition as the nature of social media evolves. Facebooko acquired Instagram for $1 billion, which coincides with the emergence of video-social media companies, like the red-hot Snapchat and Twitter's Vine app. Instagram rolled out Instagram Video to directly compete with them and hold market share.
Aside from renewed competition from other social media companies, there are concerns that Facebook has already completely saturated the developed world. Estimates for how many users Facebook has range between 889.3 million and 1.1 billion, depending on whether or not reports like the one by eMarketer that up to 10 percent of Facebook profiles are not even human are accurate. Even if the number is closer to 1.1 billion, that means there simply aren’t enough human beings on the planet to feasibly gain new users at a rate commiserate with Facebook’s first 10 years of existence, even as the company digs into the developing world user base.
At this point, Facebook needs to not try attract new users their previous breakneck clip, but keep the users they have on Facebook longer, and get them engaged more fully with the site. Facebook CEO Mark Zuckerberg touted the higher amount of interaction the average user had with the site in the form of likes and comments, and in June Facebook began rolling out Facebook Graph, as a way to connect users based on similar interests, and encourage users to begin using Facebook as a social search engine.
Analysts are optimistic on Facebook’s ability to do just this, keep eyeballs they have on Facebook longer, and finally put their revenue in line with their enormous user base. Analysts expect slightly increased revenues of 1.62 billion for .14 earnings per share, up slightly from the amse period last year.
On May 12, 2012 Facebook had a famously disastrous IPO at $35 a share that they still haven’t recovered from, as they currently sit at $26.26 a share. But going forward, analysts like Facebook’s handling of their growing mobile market – even as spending climbs, their potential user base shrinks, and they face competent, flashy competitors.
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