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Facebook Earnings: Raging Crosscurrents Are a Recipe for Extreme Volatility


Facebook reports third-quarter results after the close today and investors will go on a wild ride.


It's almost time.

After the close today, Facebook (NASDAQ:FB) will deliver the most-widely anticipated report of third-quarter earnings season.

With the stock down nearly 50% from its May IPO and one uninspiring quarter already in the bag, the Facebook bull camp is looking for a kick-save before giving up altogether, while the bears are angling for more fresh meat.

It's been an eventful quarter for Facebook to say the least, and the crosscurrents are raging as investors debate the efficacy of the company's mobile-advertising initiatives and its rapid slowdown in revenue.

So let's go through all the important issues one by one.

In my opinion, Facebook would be dramatically lower than it is today if not for CEO/Founder Mark Zuckerberg's interview at the TechCrunch Disrupt Conference on September 11. (See: Wait a Minute! Did Facebook's Mark Zuckerberg Really Say Anything New?)

At that event, Zuckerberg laid down the gauntlet for anyone doubting that Facebook will be big in mobile, by making the following statement:

So mobile is, there are going to be more users, each user's going to use spend more time, and per amount of time that they spend, we're going to make more money than we make on desktop.

Now as always, the important question is not who, what, where, or why, but when?

There's a legitimate argument that Facebook's big mobile revenue splash occurred this quarter, judging by how many ads are being stuffed into users' mobile news feeds. There are concerns that this could impact the user experience, but at the end of the day, I'm worried about earnings in the here and now.

However, on October 1, Facebook COO Sheryl Sandberg was interviewed on CNBC and may have provided evidence to the contrary. Here's a transcript of a brief part of the interview.

Q: Has the new mobile app you launched in August boosted revenue?

A: The new mobile app is boosting engagement, and engagement always leads to revenue.

Now we're playing a game of semantics here, but I view that answer as elusive, and a key factor in why I am short Facebook. (See: Facebook Hits 1 Billion Users Mark. So Is That a Good Thing or a Bad Thing?)

Additionally, I view it as a negative that the company hasn't yet released a new Google (NASDAQ:GOOG) Android app to match its highly-successful Apple (NASDAQ:AAPL) iOS one.
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