FB is scheduled to report its first quarter earnings numbers on April 27 after closing bell, and analysts are starting to put out their preview reports as we move past all the news about this week’s F8 conference. Interestingly, one firm reports that its checks suggest some advertisers are actually reducing their spend on Facebook on the back of surging app install ad prices while others are increasing their spend. Meanwhile another firm’s checks suggest overall ad spend is on the rise.
What to expect in FB’s earnings report
Goldman Sachs analyst Heather Bellini and her team expect FB to pose non-GAAP revenue of $5.31 billion, representing a 50% year over year increase, and earnings of 65 cents per share, which is a 48% increase from last year. They’re ahead of the consensus estimates on both metrics as the Street sits at $5.25 billion in revenue and earnings per share of 62 cents.
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Bellini projects total ad revenue of $5.1 billion, which is a 54% year over year increase and again ahead of consensus at $4.96 billion.
Overall ad spend on FB rising, says Goldman
The Goldman team describes their field checks as “strong” and indicating that ad spend on Facebook was higher than the 10% to 15% quarter over quarter decline that’s typically seen in the first quarter. Their checks suggest between a 5% decline and 3% increase sequentially, compared to their estimate of a 10% decline and the consensus of a 12% decline.
They said Instagram and video ads were in high demand as their checks suggest that by the end of the year, Instagram could make up 10% to 20% of ad budgets. They said this suggests between $2 billion and $4 billion on their 2015 calendar year estimates. Bellini and team note that this quarter has brought mixed data points in terms of ad spend, but they see other factors like higher brand spending and the Instagram ramp as growth tailwinds when looking forward.
They’re also waiting to see FB monetize Messenger, as the social network said it would begin conducting a “small test of sponsored messages soon.” They hope to hear more details about these efforts on the earnings call. Goldman continues to rate FB as a Buy with a $130 per share price target.
App install ad pricing surges
The data on ad spend on Facebook from Mizuho Securities highlights what the Goldman team said about it being mixed. Analysts Neil Doshi and San Phan actually cut their estimates for FB to be in line with consensus after finding that some “smaller startups” might be cutting back their overall marketing budgets for the first quarter.
The developers they spoke to said mobile app install ad pricing has increased “significantly,” and as a result, some said they’re cutting their total marketing spend or moving some of their app install ad budget to Twitter or Google because of the higher prices. Two other agencies said, however, that ad spend on Facebook is still “robust” and that brands are spending more on mobile advertising through video and the new Canvas ad formats.
They see upside potential for FB’s earnings results as being “limited” and have reduced their revenue estimate from $5.5 billion to $5.3 billion and their EBITDA estimate from $3.1 billion to $3 billion. They continue to rate FB as a Buy with a $130 per share price target.
FB shares edged higher by 1.03% to $111.65 in afternoon trades on Thursday.