Facebook Inc (FB) Q3: Lock-ups, Mobile And Sponsored Stories

Facebook Inc (FB) Q3: Lock-ups, Mobile And Sponsored Stories

Facebook Inc (NASDAQ:FB) is expected to report earnings after the market closes today. Consesus forecast call for Facebook Inc (NASDAQ:FB) to report EPS of $0.11 for the third quarter, on top of $1.226mn in revenue. There is  concern that faster-growing mobile usage could be displacing higher CPM PC-usage faster than management can ramp up mobile ad monetization. Additionally, lock-up expirations on 10/24 and 11/14 are likely to keep a lid on the stock short-term.

Facebook Inc (FB) Q3: Lock-ups, Mobile And Sponsored Stories

Goldman Sachs thinks that sponsored stories can be a big money maker for Facebook. They estimate in-stream Sponsored Stories could potentially contribute up to $300-450mn in ad revenue in 3Q2012, much higher than many are expecting. The low end of Sponsored Stories revenue is $300mn. Time spent, as measured by comScore is up 14% yoy and they estimate daily active users (DAUs) to be up 20% yoy, they do not see declining trends in the company’s core, non Sponsored Story, revenue base.

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AdParlor CEO Hussein Fazal, one of Facebook Inc (NASDAQ:FB)’s largest ad buyers, said “Since Q1 2012 we have been driving more fans using Sponsored Story ads than regular marketplace/inline like ads for large brands and agencies. This data below covers
millions of fans we have driven.”

In 4Q, with both sponsored stories and the ad exchange ramping up, Facebook could see an acceleration in ad revenue growth. However, investors aren’t expecting Facebook to guide 4Q, which may make it difficult to gauge the incremental
revenue impact of new ad formats.

In October, COO Sheryl Sandberg said, at an IAB interview, that ads in News Feeds are 8x as engaging as ads on the right hand rail and mobile users are 20x more likely to return to Facebook Inc (NASDAQ:FB) the same day.  Facebook ad agencies have also suggested that Sponsored Ads serving through the News Feeds have 4x CTRs, compared to ads on the right rail on PCs.

“Return on investment for advertisers buying through FBX is so good, that if all of Facebook’s ad inventory were sold with re-targeting, instead of user data targeting, Facebook would be able to charge 3X the price it charges for ads right now.” CPA on FBX is 3x – 6.5x lower compared to other exchanges (Triggit – FBX ad agency).

Facebook Inc (NASDAQ:FB) recent new initiatives

Date New Initiatives launched / testing

  • Mar-12 Sponsored Stories via mobile news feed
  • May-12 Promoted Posts for business accounts
  • Jun-12 Simplified mobile payments for social games
  • Jun-12 Facebook emails
  • Jul-12 FB to track App usage to target mobile ads
  • Jul-12 FB to launch Job Board (press reports)
  • Sep-12 Sponsored Results
  • Sep-12 Promoted Posts available on mobile
  • Sep-12 FB Ad Exchange launched
  • Sep-12 Mobile Ad Network (testing)
  • Sep-12 Facebook Offers
  • Sep-12 FB to integrate with DropBox
  • Sep-12 Facebook Gifts
  • Oct-12 Promoted Posts for personal accounts
  • Oct-12 FB Collection (Pinterest like site and Want button)
  • Oct-12 Mobile app install ads

Source: Company reports, press, BofA Merrill Lynch Global Research

Disclosure: No position

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