Facebook Inc (NASDAQ:FB) is expected to report solid second quarter results on Wednesday, with a potential upside of 40 percent y/y advertising revenue growth estimate driven by Mobile and Desktop News Feed ads, says a report from JPMorgan Chase & Co.(NYSE:JPM).
Facebook expected to report strong results
JP Morgan analysts are looking forward to strong results, enhanced ad revenue growth, which will boost the stocks in the short term. If this near term surge is to be continued then management should deliver better results in the second half of 2013 against stiff competitions.
JP Morgan remain bullish on the social networker as ad revenue is coming from online, mobile and social, and Facebook is in a strong position to gain maximum share of ad budgets in future.
Facebook’s Estimates from JPMorgan
For the second quarter, Facebook Inc (NASDAQ:FB) is expected to post revenue/EBITDA/EPS of $1.60 billion/$783 million/$0.13 compared to a consensus estimate of $1.62 billion/$850 million/$0.13. From advertisement segment, Facebook is expected to pull revenue of $1.39 billion (+40 percent Y/Y, +12 Q/Q), $446 million contributed by Mobile advertising (nearly $5 million/day) and $944 million in Desktop, a 4 percent decline. Payment revenues are expected to come in at $205 million (+7 percent Y/Y, -4 percent Q/Q).
JPMorgan continues to believe that competition will not affect Facebook Inc (NASDAQ:FB) much, and the company is gaining traction with the increased mobile use. Total minutes on desktops and mobile for Facebook increased from 11.8 percent in May 2012 to 15.7 percent in May 2013. In the same year, share of total minutes for services like Instagram, Twitter, WhatsApp, and Snapchat have shot up from 0.7 percent to 2.3 percent.
Report from JPMorgan expects increased revenue in the second half of 2013 fueled by improved and simplified ad formats, enhancement in the News Feed ads, FBX in the News feed and video ads.
Long term view also positive
JP Morgan analysts hold that Facebook Inc (NASDAQ:FB) will become a Blue chip company in the long term backed by its social graph, strong position than the competitors and better user experience. Wide user base of the social networking site is assisting in creating value for advertisers, though it is still in early stages. Facebook, according to the research report, is transforming its ad platform towards more social ads with higher quality formats that will add more value to advertisers.
JP Morgan has set a price target of $35 and an ‘Overweight’ rating on Facebook Inc (NASDAQ:FB). Analysts hold that business of Facebook Inc (NASDAQ:FB) is taking long stride, and the company is well positioned in mobile segment. Risks to the current price target can be rapid shift towards mobile, difficulty in measuring advertisers ROI, privacy, security and regulatory risks among others.