4 Things to Watch for In the Facebook Earnings Report

Advertisement

The market gets one of its biggest potential fireworks show tomorrow after the bell, when the Facebook (FB) earnings report is slated to arrive. And, as it seems to be the case every time, it’ll have a lot of attention — FB stock holders and mere spectators alike.

Facebook185Part of that is because FB stock itself has fallen into a swoon since peaking in March, falling about 13% since topping out around $73.

But part of that is also because social media stocks in general have taken a beating lately, including big plunges in top-notch players like Yelp (YELP), Pandora (P) and LinkedIn (LNKD). However, as Facebook does help carry the ceremonial flag for the group, and does provide a bit of insight into what’s working and what isn’t, a good Facebook earnings report could help spark renewed strength in the sector.

So what can we expect from the Facebook earnings report? Let’s take a look at what Wall Street might be (or should be) focusing on:

Facebook Earnings

It’s a good assumption that we’ll find out how much Facebook earned. That’s why they call it an “earnings report.”

Anyway, Wall Street is expecting Q1 revenues of $2.36 billion powering profits of 24 cents per share. The former number would represent nearly 62% growth year-over-year; the latter would be a doubling from last year’s earnings.

The good news is that Facebook earnings have beaten expectations for several quarters now, the most recent of which — Facebook’s late January report — really propelled FB stock.

This first-quarter report should be no exception. Facebook has effectively made a transition from the desktop to mobile — for example, during Q4, more than half of advertising revenues came from mobile — and the future of mobile looks promising. The market is expected to jump from $18 billion in 2014 to $41.9 billion by 2017, according to Gartner research. Given the massive scale of FB as well as the focus on ad quality, the company is likely to get an outsized share of the pie.

In fact, Credit Suisse (CS) analyst Stephen Ju made a gutsy call this week to upgrade his rating on FB stock from “neutral” to “outperform” and raised his price target from $65 to $87 — 40% higher than current prices. In his report, he indicated that Wall Street has been underestimating the company’s growth and that Q1 could be stronger than expected.

Monetization

Mark Zuckerberg has shown a real talent for turning his users into dollars. So on the Facebook earnings call, Wall Street will want to get a sense of how these efforts are proceeding.

Perhaps the most important thing to look for will be the mobile app installs. Essentially, Facebook makes money by serving up ads that allow users to download third-party apps, which has turned out to be a major driver for mobile.

But there are some other important monetization programs Wall Street will want color on:

  • Video Ads: These came out this year and still are in beta mode. But the potential for FB stock could be huge. After all, Google’s (GOOG) YouTube has shown that video is a must-win part of the online world. And in the IDC study mentioned above, a key driver for mobile will be video.
  • Instagram: Facebook has been experimenting with ads on the platform — which boasts about 200 million monthly active users — and there appears to be no lack of interest. Instagram even struck a deal with ad agency Omnicom that could be worth has much as $100 million.

Mobile Ad Network

Speaking of ads, we got buzz out this week that Facebook will soon launch a mobile ad network. If so, it could be a game changer. An ad network will allow the company to get revenues beyond its own core properties — a tactic also used by Google and Twitter (TWTR), the latter of which entered the space with its acquisition of MoPub.

Facebook has an advantage of its extensive database of 1.2 billion users. With this, FB can put together high-impact ad campaigns, which could result in higher pricing from sponsors.

Acquisitions

In late February, Mark Zuckerberg paid a whopping $19 billion in stock and cash for WhatsApp, a top messaging mobile app. About a month later, he shelled out $2 billion for Oculus VR, which develops virtual reality goggles for games.

However, while Zuckerberg has a good history with acquisitions — as seen with the savvy deal for Instagram — there might be some skepticism. FB stock took a sizable dip following the WhatsApp deal, and still remains off about 7% or so since then.

No doubt, on the Facebook earnings call, analysts will want to get a sense of the strategic importance of WhatsApp and Oculus. One thing I’m looking for is a hint that Facebook might use WhatsApp to help spark the company’s e-money efforts, which could be a nice accelerator for FB stock over the long term.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2014/04/facebook-earnings-q1-fb-stock/.

©2024 InvestorPlace Media, LLC