Facebook Earnings Call Offers Shot at Rebuilding Reputation

Questions Likely to Center on Mobile-Advertising Challenges

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Facebook this week is getting its first crack as a public company to allay the growth concerns that have made it the second-worst performing U.S. technology initial public offering of 2012.

The shares have tumbled 24% since Facebook, the largest social-networking service, held a May 17 IPO marred by technical glitches and signs that its price was set too high. Executives, probably including Chief Financial Officer David Ebersman and Chief Operating Officer Sheryl Sandberg, will hold a conference call July 26 to discuss second-quarter results.

"This call is really critical for this company," said Paul Argenti, a professor at Dartmouth College's Tuck School of Business in Hanover, N.H. "This is going to be an opportunity for them to really make a difference in terms of their investor relations strategy and set the record straight. They need to gain that momentum back and the exuberance that they lost as a result of the IPO."

The call, at 5 p.m. New York time, gives management its first chance since May to make a case that Facebook deserves a higher price relative to earnings than 98% of the Standard & Poor's 500. Shareholders will seek assurances that the company can keep users engaged amid rising competition from Twitter and Google and that it can overcome challenges making money from advertising on mobile devices.

Facebook was little changed at $28.75 at the close in New York.

Sales probably rose 30% to $1.16 billion in the June period, according to analyst predictions compiled by Bloomberg. That would be the slowest growth rate yet disclosed by the company co-founded by Mark Zuckerberg in 2004 in a Harvard University dorm room.

Mr. Ebersman will probably be on the call, said Andre Sequin, an analyst at RBC Capital Markets in New York. It also makes sense to include Ms. Sandberg, who has a reputation for being a clear, persuasive communicator. Chief Executive Officer Mark Zuckerberg played a lower profile during pre-IPO marketing meetings and may opt out of the call, Sequin said.

"He's made it quite clear he's much more interested in running the operation, and spending his time thinking about product development and the future of the company, than worried about this side of the process," said Mr. Sequin, who has the equivalent of a buy rating on Facebook. Ashley Zandy, a spokeswoman for Menlo Park, Calif.-based Facebook, declined to discuss the company's conference-call plans.

Mobile strategy
Several questions will probably center on the company's challenges in mobile advertising. Facebook said in May that sales growth wasn't keeping pace with user expansion as more members accessed the service with mobile phones. Mr. Zuckerberg, in an interview this month at the Allen & Co. conference in Sun Valley, Idaho, said his hardest job now is figuring out how to adapt Facebook for mobile devices.

Facebook has had little time to gain traction in mobile advertising, having just announced its inaugural mobile- advertising platform in February. Still, a recent report by Facebook ad service AdParlor said click-through rates on the mobile ads are 25 times better than on regular ads.

The company has taken other steps to heighten its appeal to advertisers. It's testing a service that places ads alongside search results, and in June unveiled plans to use real-time bidding for ads on its site, a strategy that Google and other companies have used to successfully target ads. While those efforts may spur growth in coming periods, analysts have curtailed projections for Facebook's sales and profit last quarter. Analysts cut second-quarter sales estimates 3.5% in the past month, data compiled by Bloomberg show. The prediction for per-share profit, excluding some items, fell 10%.

"Expectations are muted in general," said Brian Wieser, an analyst at Pivotal Research Group in New York.

~~~Bloomberg News~~~

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