Will Facebook earnings show the mobile curse?
(MoneyWatch) Facebook (FB), whose shares have slumped since the company's ballyhooed initial public offering in May, hopes to dispel the gloom when it announce its latest earnings on Tuesday.
To that end, the Facebook is taking steps, like letting users buy gifts for their friends, that CEO Mark Zuckerberg and his management team think will give the company a lift. Although the new service isn't widely available yet, that may be the least of the company's troubles. The bigger challenge: Adapting to the explosion in mobile communications and its impact on Internet advertising.
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The fundamental problem has been trying to find ways to make users more valuable to Facebook. On average, the company makes about $5 per user per year. That number is a fraction of what Google (GOOG) makes per year on its search and display ads.
The enormous growth in smartphones and tablets is putting additional strain on Facebook's average revenue per user. People aren't exposed to anywhere near as many ads in the company's smartphone apps as on a desktop or laptop browser window. Facebook has acknowledged that generating revenue in the mobile space is a significant challenge. In fact, it was just that difficulty that caused investors to start to cool on the stock earlier this year.
Of course, Facebook isn't the only major Internet company struggling to cope with the mobile shift. Google attributed its disappointing earnings last week to shrinking revenue from mobile advertising. Although Google's number of "paid clicks" on ads rose by a third last quarter, year-over-year advertisers paid 15 percent less per ad overall. Social gaming company Zynga (ZNGA) is another high-profile tech company that has struggled with mobile.
Facebook's gift e-commerce initiative faces problems, because efforts to get consumers to change the reason why they go to a given website often fail. Furthermore, even success selling gifts for others doesn't address the fundamental issue of ad sales not working the same, or as well, on a mobile platform.