Facebook 4Q Earnings Preview: Is There Profit With A Billion-Plus Members?

The big question is whether the Menlo Park, Calif., colossus has recovered from its previous losses, stimulated new ad revenue, sold gifts and benefited from its purchase of private Instagram to stimulate traffic from mobile platforms. That deal, struck before the IPO for $1 billion, was shaved to only $736 million because of the decline in Facebook shares.

That was in September, when Facebook shares set their post-IPO low of $17.55. They’ve gained more than 70 percent since then, trading Wednesday at $31.29, up 50 cents, still about 18 percent below their May IPO price of $38.

Analysts surveyed by Thomson Reuters expect the company managed by Mark Zuckerberg, 28, to report fourth-quarter net income of $394.4 million, or 52 cents a share, on revenue of $1.577 billion. Prior-year comparisons aren’t relevant because of pre-IPO valuations.

For the year, 39 analysts expect Facebook to report net income of $1.29 billion, or 52 cents a share, on revenue of $5.03 billion, up from only $3.71 billion in 2011 revenue.

The outlook provided by Zuckerberg and CFO David Ebersman in their talk with analysts will be critical, too. That’s because analysts expect the profit machine to grow in 2013. Full-year net income is forecast to reach $1.73 billion of 65 cents a share as revenue rises to $6.58 billion.

Meanwhile, management will be under pressure from other social networking rivals such as LinkedIn Corp. (NYSE:LNKD) and Jive Software Inc. (NASDAQ:JIVE) which offer professional networking services, as well as rival consumer offerings from Google Inc. (NASDAQ:GOOG), the No. 1 search engine, with Google+ and YouTube.

Moreover, the large computer services providers, headed by Hewlett-Packard Co. (NYSE:HPQ), the No. 1 computer company, and International Business Machines Corp. (NYSE:IBM), the No. 2 computer company, also offer enterprise secure social networking over corporate websites.

By 2016, 50 percent of large organizations “will have internal Facebook-like social networks,” market forecaster Gartner Inc. (NYSE:IT) predicted Tuesday. These competing sites will be used as “a general purpose communications channel” that can integrate all kinds of information into electronic conversations.

Other points investors will want to know include the number of members, active users and advertisers, Facebook’s cash position compared with the $10.5 billion reported in the last quarter, as well as progress towards recruiting more women to serve as directors and senior managers of the company.

COO Sheryl Sandberg is Facebook’s only female director. Before the IPO, the National Federation of Women as well as the California Public Employees Retirement System (CalPERS), one of the largest institutional investors, urged the company to recruit more women. Sandberg was elected a director right after the IPO.

Meanwhile, U.S. District Court Judge Robert Sweet in New York has been assigned to hear the multitude of class-action shareholders filed against Facebook after its share price plunged from the $38 offering price. Facebook and principal underwriters headed by Morgan Stanley (NYSE:MS) are seeking to have the charges in the consolidated suits dismissed.

Sweet has ordered all sides to have motions on both sides submitted to him by Feb. 28.