Facebook Inc (FB) Earnings Preview: Muted Reaction Expected

Facebook is scheduled to release its next earnings report tomorrow after closing bell, and analysts are anxiously waiting to see how the social network’s expenses are shaping up so far this year. Management warned in their last earnings report that they planned to increase spending this year, so this will be a key topic in tomorrow’s report.

Facebook Inc (FB) Earnings Preview: Muted Reaction Expected

What to expect in Facebook’s (FB) earnings report

Raymond James analyst Aaron Kessler and his team are expecting Facebook Inc (NASDAQ:FB) to report revenue of $3.51 billion, a 40% increase from last year. That’s a little less than the consensus estimate of $3.56 billion. They’re looking for $3.25 billion in ad revenue, a 44% increase year over year, and about $2.35 billion in mobile ad revenue, which would be a 76% increase from last year.

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The Raymond James team wants to see 920 million daily active users, which would be a 14.7% increase from last year. They also want to see $2.09 billion in adjusted EBITDA and non-GAAP earnings of 42 cents per share, which is slightly ahead of the consensus estimate of 40 cents per share.

Bernstein analyst Carlos Kirjner and his team are looking for $3.5 billion in revenue, which is in line with what the Raymond James team is looking for. Kirner included a negative impact of $275 million for currency exchange rates.

Facebook (FB) to increase expenses

On the topic of Facebook Inc (NASDAQ:FB)’s increased spending plans, Kirjner said the expenses only matter if the social network does not beat the consensus estimate for revenue. The company guided to between a 55% and 70% increase in spending on a GAAP basis and between 50% and 65% on a non-GAAP basis. Kirjner expects to see a GAAP increase of 61% in expenses and a non-GAAP increase of 54%.

Because of the significant increase in expenses, he expects Facebook Inc (NASDAQ:FB)’s EBITDA margin to fall from 68% last year to 60% this year. The analyst said the social network has earned the trust of investors in terms of execution on its goals. However, he also said they will have to prove to investors that the decline in margins, which he expects to be a long term result, is happening “as the result of high-leverage investments in ad-tech and new businesses.”

He continues to rate Facebook at Market Perform with a price target of $84 per share.

Other questions for Facebook (FB)

So far the various data points on Facebook Inc (NASDAQ:FB) indicate that the social network’s results should indeed be strong. Both Nanigans and comScore returned positive numbers for engagement and ad spend on Facebook.

The Raymond James team will be looking for more details regarding the daily active user and monthly active user percentage, which fell a bit sequentially in the December quarter. They also want to hear more about monetization of Instagram and video, which they think the company started to increase in the December quarter. As a result, they expect a “meaningful” increase to be noted in the March quarter report.

Raymond James has an Outperform rating and $90 per share price target on Facebook Inc (NASDAQ:FB). They expect a “neutral reaction” to tomorrow’s earnings report in spite of all the positives they see.