Facebook Earnings: What to Know Before Wednesday’s Report (FB)

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Heading into Facebook’s (FB) Wednesday earnings report, the company is in the shadow of a key earnings beat from internet-cousin Google (GOOGL) and an even more impressive earnings beat from nearby web-neighbor Amazon (AMZN).

Facebook stock fbHowever, the tide seems to favor FB stock.

FB stock has topped estimates in each of its last eight quarters. So it would be surprising if the social networking company didn’t do even better than anticipated on the heels of stunning growth.

And yet, for as long as Facebook has seen its top and bottom line soar, the growth trend seems poised to continue for the foreseeable future.

Facebook Earnings Outlook

As a refresher, in the first quarter of 2015, Facebook topped earnings estimates, but logged an unusual shortfall on the revenue front. Earnings of 42 cents per share exceeded expectations of 40 cents, but revenue of $3.54 billion missed forecasts for a top line of $3.56 billion.

Even so, revenue and income have continued to grow phenomenally. Trailing-12-month revenue was up 51% as of the end of the first quarter, and net income for the past four quarters was 46% higher than it was in the previous four-quarter span.

It’s a trend that has made Facebook stock one of the market’s best growth stocks, as well as an investment that comes free of needless, distracting drama.

I doubt anything will change in Q2, if the pros are on target with their predictions. Analysts believe the company will post earnings of 47 cents per share for the second quarter, up 12% from the 42 cents per share of FB stock earned in the second quarter of 2014. Sales-wise, the market is expecting a second quarter top line of $3.98 billion, up 37% from the $2.91 billion in revenue Facebook generated in the comparable quarter from last year.

Three Things to Mull About Facebook

As was noted, the one thing owning FB stock lacks is drama. The company is the clear king of social networking, it clearly knows how to monetize, and it’s clearly making the most of the world’s migration to mobile devices a way of life.

Nevertheless, there are three key themes that will drive the stock’s price higher or lower for the foreseeable future. Investors who fully grasp these concepts will have a firm grip on where Facebook stock is headed. In no particular order…

  1. Facebook has revamped the way it counts — and charges for — a “click.” Rather than counting a “like” or a “share” on Facebook, advertisers will now only incur a charge when that Facebook user goes to that advertiser’s website, hits the “shop now” button, or installs an app. Though the overhaul will likely mean fewer clicks, some experts believe it will further increase revenue as it gives advertisers the quality clicks and impressions they’ve been wanting.
  2. It’s not exactly a secret that Facebook is wading deep into the waters of video as a platform to sell advertising space, taking dead aim at Google’s YouTube. In early July, the company explained that 55% of advertising revenue generated by a video would go to its creator, and the other 45% would be retained by Facebook. Yet, for as much work as Zuckerberg has done to make video a core piece of the Facebook experience, advertisers and video makers remain unsure of why they should care.
  3. FB has tinkered with the idea before, but the world wasn’t ready for a Facebook “buy” button at the time. Now may be different, though. With consumers spending an increasing amount of time on mobile devices — and increasingly spending that time on Facebook when they’re online — Facebook stores may finally be in the right position to make the most of its reach. Only a handful of companies are operating online shops art Facebook right now, but if the experiment goes well this time, it could be a real boon for owners of FB stock.

Hopefully these are topics that will be fleshed out during the Facebook earnings call.

Bottom Line for FB Stock

Though Facebook is being forced to make multiple adaptations to its revenue model, don’t let the uncertainty of how all these initiatives will shake out alarm you. Facebook has historically been out in front of the curve with its changes, as the trailing growth numbers verify.

The second quarter is apt to have been another good one. And owners of Facebook stock can expect more of the same well into 2016 as these tweaks and initiatives take hold.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/fb-stock-earnings-growth/.

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