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Facebook Inc (FB) Earnings Preview Q2

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Facebook Inc (NASDAQ:FB) will report its second quarter results today after the market hours, and is expected to post revenue and EBITDA in line or slightly above the consensus estimates, says a report from Morgan Stanley (NYSE:MS) by analysts Scott Devitt, Jordan Monahan and John Egbert.

For posting such numbers that are in line or above the estimates, Facebook Inc (NASDAQ:FB) will have to report revenues growth of 37 percent year over year (yoy) and 11 percent quarter over quarter (qoq), and EBITDA growth of 29 percent year over year and 5 percent qoq.

Facebook Inc (FB) Earnings Preview Q2

Facebook’s Ad revenues expected to rise

Analysts at Morgan Stanley expect ad revenue to increase by 41 percent yoy helped by 37 percent impression growth and 3 percent pricing leverage. Report expects $448 million of mobile revenue “comprising 32 percent of total” compared to 30 percent in the previous quarter. Payments revenue growth is expected to come in at 17 percent yoy contributed by 25 million paying users.

Morgan Stanley expects global MAU’s to rise by 22 percent yoy to 1161 million, including 179 million in the U.S. As per the data from comScore, there were 143 million U.S. desktop users in June and 111 million U.S. mobile users. Report expects 699 million Global Daily Average User (DAU)’s with 142 million in North America.

Items to watch for

Facebook Inc (NASDAQ:FB) is expected to focus on user engagement efforts including news feed and content offerings. The earnings call is also expected to provide information on recently recently-released Graph Search, performance of mobile ad formats and enhancements in advertising analytic capabilities.

Morgan Stanley believes ad pricing as the most potential revenue driver for Facebook in the long term.  Also, higher revenue-per-click experienced by advertising agencies for all FBX ads of all types, is an encouraging sign for Facebook.

There have been reports claiming Facebook Inc (NASDAQ:FB) may come up with a video ad format in the third quarter, “with asking prices implying a $4 million daily.” Even if the asked prices were lower, reports expects video ads to contribute around 10 percent of ad revenue by the fourth quarter. Report suggests that US local election advertising could also help the Facebook’s 2014 ad revenue by 5-10 percent.

Morgan Stanley has an “Overweight” rating on Facebook Inc (NASDAQ:FB) with a price target of $33.

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