Can Facebook Grow Fast Enough?

On Wednesday, Facebook (META -10.56%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. 

Facebook has earned the scorn of many investors who are still sitting on losses of 30% or more since its initial public offering nearly a year ago. Yet the social-media giant has taken plenty of steps forward in its attempt to turn its popularity into cold hard cash. Let's take an early look at what's been happening with Facebook over the past quarter and what we're likely to see in its report.

Stats on Facebook

Source: Yahoo! Finance. *Out of the three quarters since Facebook went public.

Will Facebook start making some serious money this quarter?
Over the past few months, analysts have pulled back on their views about Facebook's earnings. They've cut their first-quarter earnings estimates by $0.01 per share, but slashed $0.09 per share from their full-year 2013 calls. The stock has also shown that nervousness, falling 13% since late January.

Although Facebook got its start from the PC world, the most important opportunity for the company going forward will come from mobile. With 680 million monthly mobile users, Facebook is in prime position to get its share of money spent on mobile advertising, which reached $4 billion in 2012 and is expected to jump to $7 billion in 2013.

But some worry that Facebook is finally reaching the full extent of its growth. Its Facebook Home app launch earlier this month for Android devices promised more complete integration of Facebook with mobile devices, yet reviews have been mixed, and the number of downloads of the app has been less than hoped. Given the importance that the company has placed on expanding its mobile presence, it's essential that Facebook get its mobile strategy right in order to keep growing at its current pace.

Still, Facebook is popular enough to have other companies doing its promotional work for it. Netflix (NFLX 1.74%) announced last month that it will make it possible for its U.S. users to share what they're watching automatically through Facebook. Given that Netflix Social required a special amendment to federal law, it's clear that Netflix thought it was worth lobbying to get the exemption, demonstrating how important Facebook has become for corporate marketing and promotion generally.

In Facebook's quarterly report, watch to make sure that the social-media company can continue to post impressive revenue growth. At this point, profits have to take a backseat as the company tries to grab as much of the mobile market as it can. Moreover, until it can demonstrate revenue from sources other than advertising, Facebook will have a tough time providing the long-term growth necessary to justify its current valuation.

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