Earnings Preview: Can Facebook and Zynga Stop the Bleeding?

NEW YORK ( TheStreet) -- After the biggest initial public offering in history, Facebook ( FB) has disappointed investors large and small. Zynga ( ZNGA) Facebook's big driver in traffic, is performing more like a lead zeppelin than a Led Zeppelin.

FB Chart FB data by YCharts

Facebook is anticipated to report weak second-quarter earnings after the close on July 26. The consensus estimate is currently 9 cents a share. Based on $29 a share and 9 cents earnings for the quarter, the price-to-earnings multiple is over 80. I am not sure the International Space Station is at a much higher altitude. At the current level of profits, it will take over 80 years of earnings to pay for one share of stock.

Facebook trades an average of 13.3 million shares a day with a market cap of $65.7 billion.

Over half the analysts covering Facebook rate it as a buy or strong buy; 14 of the 27 analysts covering the company give a "buy" recommendation. 11 analysts rate it a "hold" and two recommend selling.

Analysts are increasingly more bullish with Facebook; 12 out of 27 analysts now rate Facebook a "strong buy," up from six analysts a month ago. Compared to three months ago, even more analysts are rating this company as a "strong buy."

The average analyst target price for Facebook is $38.50. At a price of $38.50, it will take over 100 years of profits to pay for one share.

An investment in Facebook is an investment based on the company rapidly growing the bottom-line profits. I believe Facebook has room to grow revenue and profits, but expecting a fivefold increase is beyond my expectations. Facebook needs at least a fivefold increase to justify a price above $38.50.

TheStreet's Harry Schiller provides another viewpoint on Facebook . (You need a Real Money Pro account to read, but Schiller's analysis makes it worthwhile.)

Revenue year-over-year has increased to $1.97 billion last fiscal year compared to $777 million in the previous year. The bottom line has rising earnings year-over-year of $606.00 million last fiscal year compared to $229.00 million in the previous year.

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