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Much riding on Facebook's first earnings report

(MoneyWatch) Facebook (FB) on Thursday will issue its first earnings report as a public company. Depending on the social networker's performance, the results could either restore confidence in the company following its botched initial public offering earlier this year or send its stock price into tailspin.

Facebook's stock fell during the company's May 18 IPO. The problems initially seemed centered on technical flaws at Nasdaq, the stock exchange that lists Facebook shares, after traders has difficulty completing orders.

But the real issue came out the following week, with a raft of reports about the growing number of Facebook users who access the site using mobile applications. That reduces traffic to the social network, which results in lower advertising revenue. 

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Data from market research firm comScore also suggests that Facebook saw a significant drop in U.S. monthly visitors between November 2011 and May 2012. The number of U.S. "unique" visitors is important because North America provides the company with half of its revenue.

Facebook has at least temporarily reversed the slide, according to recent comScore data. The site had 159.8 million U.S. visitors in June, up from 158.01 million the previous month. But that figure still far down from the 166 million domestic visitors that Facebook saw in November 2011.

Facebook has continued to grow, but not at the rate that was supposed to justify the company's $104 billion market valuation when the company first went public. Much of its user growth also has occurred in Asia, where the average revenue per user, whether from advertising or buying Facebook credits for popular online games, is lower than in the west.

That is bad news for Facebook. As Tim Beyers points out on the Motley Fool, there appears to be a correlation between Facebook's visitors and its revenue growth.

Even with the social network's June traffic up, there is still a net drop in usage. The question is whether Facebook's revenue will decline quarter-to-quarter. The company's average monthly revenue per user has been increasing over time, a countervailing trend. Market watchers and investors will be looking to see if Facebook can generate enough extra revenue from each user to more than offset its decline in visitors and the increased shift to mobile apps.

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