Facebook Inc (NASDAQ:FB) has not exactly performed well for its investors since going public a little over a year ago. Since its IPO priced at $38 per share, Facebook has been on a roller-coaster ride, and lately seems most comfortable in the $24-$29 range.
With the company set to release its second-quarter earnings on Wednesday, July 24, what should prospective and current investors be paying attention to, and should we consider getting in before the report?
Cash, and what Facebook plans to do with it
One area where Facebook Inc (NASDAQ:FB) has done right so far is its cash management. As of March, Facebook had about $9.5 billion in cash and investments on its balance sheet. What I want to know is what it intends to do with its cash. I expect that some will go to investments in new technologies and services, but I’m specifically listening for any clues about the future usage of its cash.
How interested Facebook Inc (NASDAQ:FB) is in major M&A activity? Will it begin returning some cash to shareholders in the form of buybacks or dividends? While I don’t expect any major announcements in this regard, the conference call could provide some insight as to where the Facebook board may decide to allocate the pile of cash.
In the past couple of years, about 20% of Facebook’s revenue has come from gaming and the purchasing of “virtual goods” within those games. Zynga Inc (NASDAQ:ZNGA) has been the primary source of this revenue, contributing about 15% of Facebook’s total revenue. There was some concern about Zynga Inc (NASDAQ:ZNGA) venturing out on its own website, essentially cutting its ties with Facebook Inc (NASDAQ:FB), but so far, these concerns seem unfounded. In fact, Facebook’s gaming revenue seems fine while Zynga Inc (NASDAQ:ZNGA) hasn’t been doing so hot lately.
In June, Facebook gave the market a bit of insight into its current gaming revenue when it said that the first quarter of 2013 was its best gaming revenue quarter yet. The company also said that 82 of the top 100 grossing iOS game apps and 75 of the top 100 Android apps are integrated with Facebook.
A good example of the post-Zynga Inc (NASDAQ:ZNGA) Facebook Inc (NASDAQ:FB) is the current top-grossing game, “Candy Crush Saga” by King, which ousted Zynga Inc (NASDAQ:ZNGA)’s FarmVille 2 earlier this year. During this quarter’s report, I am very curious to see the actual numbers behind the company’s recent statements.
The ever-elusive monetization of mobile ads
While the big drop in the months following the IPO seemed to be the result of skepticism over the company’s ability to monetize mobile ads, it is starting to look like Facebook is winning that battle. According to a recent report, Facebook’s mobile ad revenue is expected to top $2 billion this year, up over 300% from 2012’s mobile revenue of less than $500 million.
Despite the increase, there is still a ton of growth potential in this area. Google Inc (NASDAQ:GOOG) (NASDAQ:GOOG) has done perhaps the best job of monetizing mobile ads so far, and is projected to earn $8.85 billion from mobile ads this year. Mobile ads are probably the most crucial revenue growth area for Facebook going forward, so any details on this are extremely important.