Although its the second week of the earnings season, Facebook Inc (NASDAQ:FB) investors will have to wait until after the close on January 30 to hear 4Q results.


But that hasn’t stopped analysts from hitting the pause button on their research reports. Facebook’s stock price has made decent gains since the start of the year, which as fueled expectations.

On Wednesday, Goldman Sachs Group, Inc. (NYSE:GS) wrote a 4Q preview for the social media giant called, “Finding its groove – 4Q12 Preview.”

Here’s what their analysts had to say.

They are modeling total revenue and non-GAAP EPS of $1.49 billion and $0.14,respectively, as compared to the $1.52 billion and $0.15 consensus.


Analysts see an upside to the quarter as a result of the continued growth in News Feed ads and the new Gifts services which launched in late September. The $404 million estimate in revenues from News Feed ads may prove too conservative.

For example, analysts’ forecasts imply that $4.4 million in average daily revenues were generated ($5.0 million consensus) from in-stream ads when the company commented that it exited the September quarter with roughly $4.0 million in daily Sponsored Story revenue.

In addition to the sensitivity analysis, small increases in ad frequency can generate significant incremental in News Feed revenue given the size of the user base. For example, if Facebook Inc (NASDAQ: FB) showed the average user one additional ad every other day for the whole quarter, this would produce roughly $100 million in incremental revenue. Furthermore, Gifts could represent $20-45 million in Payments revenue not included in their current 4Q12 payments estimates.

Facebook continues to be seen as one of the few companies with a shift to mobile bringing better pricing and margin accretion.

Analysts raised their 12-month price target to $38 from $35 due to higher EV/EBITDA multiples for the company’s peer group. The price target is based on an equal weighting of DCF, EV/EBITDA and P/FCF.

At around $30, Facebook trades at 72X to the 2013 FCF estimate of $1.69 billion and at 20X of the 2013 non- GAAP EBITDA estimates.

Key risks
Analysts listed the following as the biggest risks to higher earnings and higher stock prices: macro, user fatigue, privacy missteps and user backlash from new ad formats.

Meanwhile, something to keep an eye for the 1Q 13 earnings report is Facebook’s new tool called graph search.

The company introduced it on Tuesday and it has been viewed as an ambitious move and one that will enable the social media giant to ruffle Web search feathers long-dominated by rival, Google Inc (NASDAQ:GOOG). According to the New York Times, yesterday’s announcement will also give a friendly nudge to other search services such as LinkedIn Corporation (NYSE:LNKD) (jobs), (dating), and Yelp Inc (NYSE:YELP) (restaurants).

When introducing the app at the company’s headquarters, Facebook co-founder and CEO Mark Zuckerberg said users will be able to search their social networks for people, places, photos and other things that may potentially interest them.

As an example, Zuckerberg cited possible Palo Alto Mexican restaurants that his friends have either “liked” on the site or checked in at. Finding a date, dentist or job may also be possibilities.

The graph search tool will be immediately available but only to a limited number of Facebook users numbering in the “thousands” said Zuckerberg. It will gradually be rolled out.

On Wednesday, Facebook Inc (NASDAQ:FB) is currently trading at $29.97, down 0.43%.