Ahead of earnings day, Facebook manages expectations

The stock market is an unforgiving place these days. So why not help shape the blizzard of coverage that's set to take place later this week?

Facebook

As it gets ready to report its first earnings as a publicly traded company this week, Facebook is doing something most high-profile tech companies wouldn't think of: It's offering to help out the media.

More specifically, the company's outside PR firm, Brunswick Group, is sharing with journalists a list of selected Facebook news in case they weren't watching when the items first came over the transom. In addition, they've compiled links to articles which stress that, yes, big advertisers ( unlike General Motors ) really do like Facebook as an advertising platform.

For Facebook, it seems, this is part of a wider effort to manage expectations around what promises to be one of the most highest-profile conference calls with a tech company this year.

The execs at Facebook know just how unforgiving public investors can be, and plenty feel burned by Facebook, its bankers, and the Nasdaq. (Hence all the lawsuits against Facebook , and Facebook's fight with the Nasdaq ). That's why the company is hoping that the press presents the glass-half-full part of the story when Facebook announces its second-quarter results Thursday afternoon. In light of the fallout from Facebook's bungled May IPO, Facebook has an added incentive to underscore the things that it wants to share that might otherwise get overlooked.

And in that respect, Facebook indeed has plenty to talk about, including these items:

  • Earlier this month Facebook settled a huge and potentially costly patent fight with Yahoo that began when Yahoo sued Facebook just before the IPO.
  • In April, the company paid Microsoft $550 million for a slew of important patents .
  • In June, it launched its own app store, called the App Center , adding to its mobile efforts and potentially leading to new revenue streams.
  • It recently began serving personalized ads and so-called sponsored stories on Zynga.com, the first time it's done this outside of the Facebook world.
  • In June, it launched an ad exchange, called Facebook Exchange , to let advertisers better target users on Facebook by tracking what else they do across the Web.
  • It's made a slew of acquisitions -- eight in all, according to the PR cheat sheet -- including the $1 billion stock-and-cash purchase of Instagram that got the world's attention.

With these handy CliffsNotes, it's as if Facebook is trying to say, "Don't just look at the quarterly numbers!" They also serve to remind us that Mark Zuckerberg and the crew have been hard at work in the past months -- even if the fruits of much of their work won't translate to the bottom or top line for next couple of quarters or even more.

"Facebook has been incredibly busy and experimental over the last few months," says Jed Williams, a senior analyst with BIA Kelsey, a research firm focused on interactive media. "They've made a rash of acquisitions and thrown themselves into a lot of areas that they really won't be able to monetize in three months. Right now, it feels like a lot of individual pieces, but there must be a bigger puzzle in mind."

Will Wall Street be patient -- that is, not punish the stock further -- while Zuckerberg and the team assemble that puzzle? That's hard to say. The market is treacherous these days, and investors are not inclined to give Facebook the benefit of the doubt. The stock, now trading around $28 a share, hasn't touched its offer price of $38 since day one.

When investors pick apart the results after the numbers hit the wire, they will, as my colleague Larry Dignan points out , zero in on signs of the health of the advertising business, how many people are accessing Facebook from mobile devices and, importantly, and any sign that Facebook is having success making money from mobile.

Equally important will be how good a job Facebook execs do fielding questions from analysts and investors on this, their first-ever conference call. After weeks of watching their stock flounder, management will finally get an opportunity to publicly talk up Facebook's longer-term prospects. (The company isn't yet saying whether Zuckerberg will participate).

Here are a few things I hope they talk about:

All those acquisitions. After its blockbuster deal for Instagram, which still needs to clear regulatory hurdles, Facebook returned to its more typical pattern of buying up small companies. Some of these so-called acqui-hires were done to scoop up the employees. That's how Facebook is characterizing its acquisition of Pieceable and research and design agency Bolt Peters, for instance.

But what about its acquisition of the location-app startup Glancee , which, the company says, makes it "easy to discover the hidden connections around you"? Or what about social-gifting company Karma , which brings e-commerce and social onto smartphones? And how about TagTile , the mobile-based customer loyalty Square competitor?

These small but important acquisitions won't likely get mentioned amid the noise of a big earnings report, but some more detail on the thinking surrounding them would be helpful. Is Facebook planning to incorporate location-based data to deliver targeted and useful ads on mobile phones? Or even planning to tap into its powerful user data and reach to come up new types of offers, creating a Groupon killer of sorts?

Doing away with Facebook Credits. So far, the company has said little about its plans with e-commerce, although it has been taking steps that offer clues. The purchase of TagTile is a curious one, for sure. But more intriguing is that in June Facebook did away with its own currency , called Facebook Credits, and began accepting real currency via credit cards. That makes it easier for companies to sell goods on Facebook, potentially creating a full-on iTunes competitor. Let's hope for some hint to how this effort is going.

That outside-Facebook ad network. This is a big one. Facebook has huge potential to create an ad network that taps into your social connections to sell targeted ads across the Web, outside of Facebook. So many sites now use Facebook Connect to let consumers log on with their Facebook credentials that it seems a natural step for Facebook to begin offering new kinds of ads that incorporate what you and your friends "like" and do on Facebook.

I analyzed the possibility of a Facebook ad network just before the IPO , and although the company hasn't talked about this, its actions suggest the company is going in this direction. That includes the move to place personalized ads on Zynga.com, and its new Facebook Exchange. These also are new initiatives, of course, so any clues as to how they're doing and where this is going are more likely to come on the conference call than in the earnings release itself.

 

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