What's Happening, Quepasa?

Quepasa (AMEX: QPSA  ) is looking better, but it's still not ready to hop on Facebook's coattails as a primetime player.

The fast-growing social networking site for Latinos is still a small fry. It clocked in with revenue of just $2.2 million in its latest quarter -- and more than $2 million of that came through an advertising deal with a sponsor affiliated with one of its board members. Quepasa still needs to prove that it can monetize its growing traffic.

Quepasa's red ink does continue to narrow. It lost just $1.5 million during the quarter, so the website operator is at least taking baby steps toward profitability.

Before last week's Renren (Nasdaq: RENN  ) IPO, Quepasa was the only publicly traded stand-alone social networking site. Investors unable to buy into privately held Facebook have turned to Quepasa in recent months, making it one of the market's more volatile tech stocks.

We can't call Quepasa the Facebook of Latin America. There are too many players thriving throughout South America. Telefonica (NYSE: TEF  ) acquired Tuenti last year. Google's (Nasdaq: GOOG  ) Orkut is a bigger hit in Brazil than it has even been closer to home. Facebook is the global leader for a reason.

My biggest knock on Quepasa -- outside of valuation -- has been its iffy engagement metrics. It claims 35.6 million registered users as of the end of April, but it only served up 245.8 million pages to 17 million unique monthly visitors last month. In other words, the site lacks the stickiness found at Facebook.

Hopefully that will change since Quepasa's acquisition of a small Brazilian developer of social games. The goal is to push its Web-based gaming diversions beyond Quepasa onto Facebook and Orkut. The upside is huge, but we also need to be realistic here. For every Zynga, there are thousands of hungry developers out there angling to be the next Zynga.

Quepasa's opportunity is real, but the window won't stay open forever. The market spits out second-tier social networks. AOL (NYSE: AOL  ) dumped Bebo at a steep loss, and News Corp. (Nasdaq: NWS  ) is having a fire sale for MySpace.

Quepasa will need to ramp up user engagement, drum up more non-affiliated revenue, and turn the corner of profitability to live up to its nine-figure market cap. It's a long shot, but at least it still has a shot.

Is Quepasa a long or a short at this point? Share your thoughts in the comment box below.