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Facebook delivers its Q2 2012 earnings this afternoon and expectations are subdued. The social network has taken a beating in the media and the stock was down to $29.34 last night, from its post IPO high of more than $38/share. The decline of Zynga—whose game business is heavily intertwined with Facebook’s—doesn’t help, either.Nonetheless, Facebook has been extremely busy in the quarter. It appears to have talked General Motors into coming back as a client, for instance. And it’s launched a huge slew of new ad products.
So it will be crucial for Facebook COO Sheryl Sandberg and CFO David Ebersman (and CEO Mark Zuckerberg, if he deigns to attend) to answer these three questions on their call with analysts:
1. HAVE THE NEW AD PRODUCTS GROWN REVENUE?
It’s still early days, but investors will want to see signs that adding new ad products to Facebook—such as logout page ads and premium self-service ads—actually adds new revenue rather than shifts existing revenue around from one format to another. New products are no good if all they do is cannibalise existing client money.
2. ARE FACEBOOK’S MOBILE ADS GROWING REVENUE OR DEPRESSING IT?
The future of Facebook advertising will be on its mobile apps. But mobile ads are cheap—much cheaper than desktop display inventory. If clients move their display money into mobile, it could actually reduce the total revenue in dollars that Facebook makes. There are signs of this happening at Google.
3. CAN FACEBOOK RAISE PRICES?
Advertisers have flocked to Facebook in part because it has a huge audience—900 million people. But user-growth at Facebook is declining. Growth won’t come if user numbers and ad dollars are in lockstep. To grow, Facebook must grow ad revenue per user, or per ad. Either way, it must show it has the power to raise prices and keep its clients coming back for more.
Disclosure: The author owns 30 shares of Facebook stock.
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