Facebook Inc (FB) Earnings Preview: Setup Looks Good

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Facebook Inc (NASDAQ:FB) is scheduled to release its fourth quarter earnings report on Wednesday, and the consensus estimates are earnings of 67 cents per share and $5.36 billion in revenue. Recent data points seem to suggest that the results will be strong. Nanigans reported strong advertising trends on the social network as it looks like the company has gained share in mobile advertising.


FB enjoys strong growth

In a report dated Jan. 25, FBR & Co. analysts William Bird and Marvin Fong highlighted areas of strength and gave their expectations for where investors’ attention will be focused. They reiterated their Outperform rating and $125 per share price target on Facebook.

They noted that the markets are still plagued by macroeconomic problems, but despite this, Facebook Inc (NASDAQ:FB) may present a growth opportunity in the area of large cap media—something that has become quite scarce in the space. Further, they said the social network is exposed to the rapid increase in brand advertising, which they called a “mega-trend” and saying that it is well-positioned to grow its market share in mobile advertising.

Facebook adds to mobile market share

In fact, Facebook’s app is one of only four apps that consumers spend 75% of their time on even though there are about 3.1 million choices. Additionally, they cited data from comScore for the fourth quarter indicate that Facebook continues to make progress in growing its share of mobile usage as its U.S. share last month climbed to 19%, excluding Instagram and U.S. Smartphone minutes in the U.S. climbed 14% year over year.

Data from Nanigans also demonstrates Facebook’s health, this time in the area of pricing. Global cost per thousand impressions climbed 45%     to $6.38. The social network continues to increase the mix of video ads and improve its algorithms.

The FBR team also said that the company continues to commercialize Instagram, and this week’s earnings report will demonstrate the progress in this area because the fourth quarter was the first in which the platform was open to all advertisers. They think Instagram will be able to contribute about seen points to the social network’s ad growth during the fourth quarter, adding that it should be benefit from Facebook’s learning and data assets. In the long run, they believe the platform will be able to achieve an average revenue per user that’s similar to that of Facebook.

Looking into 2016

Bird and Fong think investors will be focusing on important growth drivers for this year, including Instagram and video advertising and possibly even Oculus. The virtual reality device begins shipping in March, and they see it as a long-term opportunity.

They add that usually Facebook offers an outlook on expenses and typically comes in toward the lower end of the range. The social network pegged non-GAAP operating expenditure guidance at 50% to 65% growth a year ago, which was a slight improvement from the previous guide for 50% to 70% for 2015. As the year went on, guidance for the metric continued to decline.

Shares of Facebook climbed by as much as 1.55% to $99.44 per share during regular trading hours today.

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