Facebook Inc (FB) is set to release its next earnings report on Wednesday after closing bell, and the social network may have a difficult time beating expectations. Because of its high valuation, investors will want to see a strong beat rather than an in-line quarter, but just how likely is this?
What to expect in Facebook’s (FB) earnings report
Wall Street expects Facebook Inc (NASDAQ:FB) to post adjusted earnings of 62 cents per share and $5.25 billion in revenue and has grown accustomed to strong beats by the social network. Fourth quarter revenue ended up beating the consensus by 9%, while earnings beat by 11 cents per share, reports CNBC.
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The media outlet reports that analysts are expecting a 48% year over year increase in revenue for Facebook, which places it firmly in hyper-growth territory. This is also why the social network’s stock is considered by many to be a must-own long-term stock. Such a dramatic increase in revenue puts Facebook Inc (NASDAQ:FB) on a faster growth pace than Alphabet currently, which posted a 23% increase in revenue last week. The average S&P 500 stock only increases revenues by approximately 4% to 5% each year.
Investors expecting a lot from Facebook (FB)
RBC Capital Markets analyst Mark Mahaney believes that because so many analysts believe Facebook’s growth potential is as strong as that of Alphabet or Netflix, they’re looking for dips in its stock price to buy. He added that the bigger the correction in expectations, the greater the buying opportunity, according to CNBC.
Mahaney also explained that sell opportunities exist in a few scenarios, like if suddenly some kind of fundamental shift in the social network’s value proposition appears. One such example he gives is advertisers deciding that the platform isn’t offering them any kind of sustained return on their investments. Another is a decline in user engagement, although he assigns a less than 10% probability that either one of these scenarios occur.
Facebook (FB) touches most U.S. Internet users
Third-party data supports the view that any kind of negative shift in user engagement appears unlikely, at least right now. Verto Analytics released its latest set of user data on Facebook ahead of tomorrow’s report. The firm said 237.4 million U.S. users accessed at least one of the social network’s services at least once last month, giving it a net reach of 95.9% in the U.S. The social network has 186 million daily active users in the U.S., which Verto says gives it a “stickiness index of 78%. The average Facebook user spends 45.2 hours per month on the social network with the average duration at 7.4 minutes.
After Facebook Inc (NASDAQ:FB) itself, Instagram is the second most-used service operated by the social network with 127.3 million users who spend 1.7 hours spread across 46 sessions per month on the service, said Verto. Facebook Messenger is in third place with 101.6 million users, while WhatsApp is in a distant fourth place with 19.7 million users.
Mobile ad revenue in focus
Mobile ad revenue also continues to be a key focus for Facebook Inc (NASDAQ:FB)’s results as Cantor Fitzgerald analyst Youssef Squali said in a report on Monday that he expects it to make up more than half of the social network’s first quarter revenue. The analyst also noted that in its earnings report last week, Google showcased mobile as being its top revenue growth driver for the first quarter, which of course means great things for Facebook.
MKM Partners analyst Rob Sanderson expects a significant increase in Facebook’s mobile ad revenue over time on the back of the rising number of mobile devices and rising Facebook Inc (NASDAQ:FB) usage. He believes mobile will continue stealing marketing budget share compared to all other ad mediums for “most of our lifetime.”
Instagram and video ads will also be in focus this year as they are expected to finally contribute meaningful amounts to the social network’s revenues. Facebook also started shipping its Oculus Rift VR headsets and could start seeing some impact from them soon.
Facebook Inc (NASDAQ:FB) shares slumped 1.46% to $108.49 in afternoon trading on Tuesday.