Facebook earnings: Skepticism on all fronts

Like a growing number of teens, Wall Street is emphatically meh on Facebook.

Though the social network is expected to show marked improvement on mobile and 43 percent year-over-year growth in advertising revenue, investor confidence remains low. Facebook shares, stagnant since the company's last report, suggest that the market trusts the long-term health of the social-networking service the way a parent relies on the word of an adolescent child.

As far as numbers go, Wall Street expects Facebook to report $1.44 billion in revenue and adjusted earnings per share of $0.13 when it details its first-quarter financial performance after the closing bell Wednesday.

Goldman Sachs, which has an aggressive 12-month stock price target of $40 for Facebook, is particularly bullish on Facebook's ability to grow mobile revenue to $382 million, up 25 percent from the previous quarter, and around 31 percent of an estimated total ad revenue of $1.25 billion for the quarter. EMarketer issued its own vote of confidence in Facebook's ability to capture mobile advertising dollars. Earlier this month, the analytics company predicted that the social network would take close to 30 percent of the mobile display ad market in the U.S. this year.

These are not insubstantial facts, particularly when they're center on an area many expected to be Facebook's achilles heel. Even RBC Capital Markets, which has a more tepid outlook of Facebook than Goldman Sachs with a $32 price target, agrees that mobile is not the weakness it was once believed to be. The firm expects mobile will make up more than a third of Facebook's revenue for the full year.

"Facebook has, so far, effectively addressed one of the most significant overhangs from its IPO days, the lack of mobile monetization," RBC Analyst Mark Mahaney wrote in a note published Monday on Facebook. "Mobile advertising revenue is now showing significant growth and becoming a material part of the overall advertising revenue mix."

Yet Facebook shares remain depressed. Despite a few positive rallies, the past 90 days have been unkind to the social network's market value. Moody investors abandoned an optimistic outlook the day Facebook reported fourth-quarter earnings on January 30.

Facebook spent most of November, December, and January climbing to $31.24, earning back 60 percent of lost value in the process. Then fear, primarily around increased spending and attrition in member attention on desktop, set in. Facebook shares closed Tuesday at $26.98, which means the most recent three-month period, though punctuated by some of the most substantial product releases in the company's nine year history, has been a bust.

Investor inquietude parallels a developing narrative around people, but youngsters in particular, tiring of Facebook. The social network has indicated that its youngest members are spending more of their time in other applications such as Instagram, which Facebook owns but does not use to sell ads. And a crop of messaging applications including WhatsApp, Kik, Line, and maybe even Path, are growing in popularity and providing hundreds of millions of people a more private social outlet.

Facebook will likely show once again that its members are migrating away from the desktop, where Facebook generates most its revenue. The company's mobile daily active users exceeded its Web daily active users for the first time last quarter, and it's a trend that should continue and prove problematic in the short-term.

Facebook pushed to stop the desktop revenue bleed with retargeted advertisements in News Feed and super-size ad units, but the Band-Aids would have been applied too late to work for the March quarter. There's also a question as to whether smarter, larger ads will scare people away. And it's not as if Facebook Gifts or Graph Search will swoop into the rescue anytime soon.

Goldman Sachs is projecting desktop revenue to come in at $864 million, which would be down 16 percent from the previous quarter and down 1 percent from the year-ago quarter. Sterne Agee, meanwhile, is forecasting $907 million in revenue from desktop advertising in the first quarter.

To be appeased, investors will need proof that Facebook members are spending just as much, if not more, time on the social-networking site. They'll also want to know if Facebook's daily and monthly active user numbers are still growing in markets such as the U.S. where the social network appears to have reached capacity.

Investors won't be satisfied if they don't hear something substantial about each of Facebook's numerous product releases or purchases. Is Facebook Gifts still a dud? How is Graph Search performing? Can Facebook link bigger News Feed stories to increased engagement? What's the run-rate of ads in the News Feed? What's the status of the Atlas purchase? Will the Parse pick-up equate to a substantial new revenue stream? Will Facebook curb its spending?

Should history repeat itself, Facebook won't satisfy investors thirst for these answers with anything more than basic disclosures.

Separately, Facebook Home, though an obvious attention-grabber on mobile, won't factor into the social network's performance this quarter. Still, investors will be looking for Chief Executive Mark Zuckerberg to elaborate on the company's new home on Android. Surely wary about poor users reviews, they'll want to hear how Facebook will address Home's unfavorable perception and nail down timing of pending ad placements in Cover Feed.

Still, no matter how cheery Zuck's answers or how rosy the outlook, Wall Street may be too disillusioned to see beyond its skepticism.