Facebook’s 3Q Earnings: How To Make Money With 1B Members

Now that Facebook (Nasdaq: FB), the No. 1 social networking site, has unofficially announced its membership exceeds a billion, the next thing investors want to know is if the company can make any money.

With its shares off 50 percent from the May 17 initial public offering price of $38, a second-quarter loss and the prospect of bitter class-action lawsuits to begin in a still-undetermined federal court sometime next quarter, Wall Street analysts at least expect Facebook to report its first profit as a public company.

The Menlo Park, Calif., enterprise is expected to report net income of $285.12 million, or 11 cents a share on revenue of $1.23 billion. While direct comparisons are difficult, a year ago, net income was $227 million on revenue of $954 million as a private company.

Profit’s expected to continue into the fourth quarter, with full-year net of 48 cents a share on revenue of $4.89 billion, analysts surveyed by Thomson Reuters estimate. Of 29 analysts, 22 now rate Facebook a “buy” or “strong buy,” two a “sell” or “strong sell” and the rest are “neutral.”

Earlier this month, founding CEO Mark Zuckerberg, 28, updated his own status to crow about the 1 billion member number. To be sure, Facebook in various filings with the U.S. Securities and Exchange Commission has acknowledged as many as 5 percent are fraudulent.

But Facebook’s big problem has been to make money off its users through games, advertising and other methods, especially now that they access Facebook more and more from smartphones rather than PCs and laptops.

One new application is a closer link with Apple (Nasdaq: AAPL), the world's most valuable technology company, which makes it easy to access Facebook from the iPhone 5. But the latest iPhone was available for only nine days in Facebook’s third quarter.

Another potential moneymaker is Facebook Gifts, live for only a few days in the third quarter. “With 3 million Facebook users celebrating birthdays each day, this could be a nice way to incrementally increase” average user revenue, said Jefferies analyst Biran Pitz. It could boost annual revenue by $100 million next year, he estimated.

Other potential revenue generators are more “sponsored stories” in Facebook news feeds and a successful rollout of realtime ad bidding, said Standard & Poor’s analyst Scott Kessler.

Then Zuckerberg, who controls about 58 percent of the shares and appointed all of the board members, can use some of the company’s $10 billion to make more acquisitions, such as the $1 billion Instagram purchase that brought the private San Francisco photo apps developer into the fold, as well as design special programs for offshore markets that may respond differently than those in the U.S.

Facebook was hammered, both in its IPO and last quarter, by the sales stampede of early investors such as Accel Partners or key individuals including co-founder Dustin Moskovitz and early backer Peter Thiel, especially as it faces the expiration of more “lock-ups” that will allow employees to sell their shares.

Zuckerberg last month pledged not to sell any shares for at least a year.

Meanwhile, Facebook still needs to make progress on another front. Before the IPO, the National Association for Women as well as the California Public Employees’ Retirement System complained of the lack of senior women executives and directors at Facebook.

Subsequently, COO Sheryl Sandberg, 42, was elected a director.

Shares of Facebook closed at $19.32, up 32 cents, in Monday trading, valuing the company at $41.3 billion.