Facebook Earnings Preview: All About Mobile

NEW YORK ( TheStreet) -- Facebook ( FB) reports earnings after the close, and as the company continues its transition to mobile, Wall Street's eyes will be focused on whether it can keep up the trends of delivering mobile revenue.

Last quarter, mobile revenue accounted for 23% of advertising sales, and CFO David Ebersman told investors Facebook became a mobile company in 2012. "2012 was the year Facebook became a mobile company," Ebersman said in an interview with TheStreet. "Mobile provides a huge opportunity for Facebook, and we're working to make sure our ad products work well on mobile."

Shares of Facebook were falling 0.7% to $27.58 in afternoon trading.

Cantor Fitzgerald analyst Youssef Squali believes that number is only going to increase, as more and more advertising money flows to devices like smartphones and tablets, where Facebook has an incredibly strong presence. Of its 1 billion-plus users, Facebook has more than 600 million of its users using its mobile apps, on devices like Apple's ( AAPL) iPhone and iPad, and devices running Google's ( GOOG) Android operating system. "We believe Mobile revenue should remain healthy, accounting for ~27% of all ad revenue," Squali penned in the earnings preview. He rates shares "buy" with a $35 price target on Facebook.

Recent earnings from Yahoo! ( YHOO) and Google should bode well for Facebook domestically, Squali wrote in his report. Weakness may come from international locales, where pricing trends have stayed weak. The industry continues to expect pricing to strengthen in mobile, as evidenced by recent comments from Yahoo! CEO Marissa Mayer on Yahoo!'s earnings call.

Mayer noted the recent pricing weakness year-over-year is largely reflective of continued mobile weakness. "... A s it mobile becomes bigger and bigger, we ultimately aren't seeing what we really think the price ultimately will be from mobile ads. We think that they are every bit as effective as they are on the PC and we anticipate that pricing will eventually get us to that point."

The Menlo Park, Calif.-based Facebook is expected to earn 13 cents on a non-GAAP basis, with revenue coming in at $1.44 billion, according to analysts surveyed by Thomson Reuters. Analysts surveyed by Estimize are a little more bullish, looking for 15 cents per share on $1.48 billion in sales.

As Facebook entrenches itself as a mobile company, the company is releasing more and more products to spur revenue growth from this portion of advertising revenue. Facebook Home, which was recently announced, is one such announcement. The app was designed to increase engagement, and ultimately ads will come to the product, which is available on select Android devices. Products such as Facebook Home and a revamped News Feed, designed to show off brighter and bigger stories, are examples of innovation from the social network designed to stimulate the user experience, and ultimately, revenue growth.

Topeka Capital Markets analyst Victor Anthony believes usage worries, which were recently outlayed by comScore, as well as Facebook itself, seem overblown. "We saw that Facebook remains in favor with teenagers, and is used along with other platforms," Anthony wrote in his research note. "Separately, we believe that Facebook will exceed the consensus revenue estimates on strength in model advertising . . ." Anthony rates Facebook shares "buy" with a $40 price target.

With mobile playing an enormous role in Facebook's future, the pressure is on the company to keep delivering growth, and show investors that it's able to generate serious cash from mobile. If it's able to demonstrate this, Facebook could have Wall Street "liking" it for the first time in quite a while.

-- Written by Chris Ciaccia in New York

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