Facebook, Inc. (NASDAQ: FB) would release its third quarter 2013 financial results after market close on Wednesday, Oct. 30, 2013. Facebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET the same day.
Wall Street expects Facebook, the social networking giant with more than 1 billion active users, to earn 19 cents a share, according to analysts polled by Thomson Reuters. The consensus estimate implies 58.3 percent growth from 12 cents it earned last year.
California-based Facebook's earnings have topped Street view thrice in the past four quarters. The consensus estimate has increased by a penny in the past 90 days. In the past month, seven analysts have raised their earnings target on Facebook.
Quarterly revenue is expected to increase 51.2 percent to $1.91 billion from $1.26 billion in the same quarter last year.
Investors look for monthly and daily active users as the user engagement drives revenue for Facebook via advertisement. Importantly, they would look for any upside in mobile users.
Advertising revenue accounts for more than 80 percent of total revenue and hence a key metric to watch for, while investors look for how much revenue it got from mobile segment. There could be upside in shares if the company records an increase mobile active users.
Facebook's momentum with advertisers has built through the third quarter in terms of click-thru rates (CTR) and engagement with ad products (both mobile and desktop), which have exceeded advertisers' internal goals.
Many advertisers like Facebook's opportunity to the early days of search, i.e., that a long-tailed opportunity exists for new buyers to initiate spending on the platform.
Despite a lackluster performance following its IPO, Facebook has begun to show signs that it can successfully monetize its platform as usage moves from desktop to mobile. Facebook remains under-monetized relative to peers given the time spent on the platform and that Facebook ads exhibit stron! g pricing power, which can provide a tailwind to revenues going forward
Facebook, with its 1 billion plus user base, has about 4 times headroom before it is monetizing its users at the same rate. According to Triggit (retargeting platform), only 9 percent of the Internet Retailer Top 500 is utilizing FBX, a real time bidding (RTB) platform from Facebook. The early adopter phase is in full swing, and the future looks promising.
According to comScore, worldwide desktop data for the first two months of the third quarter for Facebook (excluding Instagram) showed a 5.3 percent decrease in unique visitors, 0.6 percent growth in total minutes, and a 17.5 percent YoY decline in total page views.
On the other hand, U.S. mobile data for Facebook showed that unique mobile visitors (iPhone + Android) were up 8.6 percent and that total user minutes nearly doubled – up 97.1 percent. This bodes well for Facebook as it could monetize its mobile user base.
Facebook proved that it is monetizing its mobile user base as its mobile revenues of $656 million accounted for 41 percent of ad revenues. North America price per ad jumped 40 percent from last year, indicating that demand, pricing and advertiser returns all seem to be improving at the same time
The next form of monetization could come in the form of video ads in Newsfeed. Newsfeed (both desktop but more importantly mobile) is the biggest driver of future revenue growth, so judging the stage of adoption for newsfeed monetization is critical to the overall investment thesis.
The company plans to introduce ads on Instagram beginning next week. Facebook recently introduced video on Instagram. The introduction of video makes the service more compelling, leading to greater user engagement and also opening the door to lucrative video advertising. The ads on Instagram could be a solid long term contributor to the topline. The company is expected to give more updates on this aspect during the call.
"Our checks indicate that mobile a! pp instal! l ads are among the highest performing ads in Facebook's ad product suite," UBS analyst Eric Sheridan said in a client note.
In a recent blog post, Facebook disclosed that mobile app install ads have driven more than 145 million app installs in 2013 through October 1st – up from 25 million through March 31st. Moreover, Facebook announced that it was expanding the scope of these ads to go beyond installs to include various calls to action (e.g., "Play Game", "Shop Now", "Watch Video", etc.).
"We believe this significantly expands the market opportunity for Facebook's mobile-only ad units and look forward to management's thoughts on how this will impact ad unit volumes and pricing trends going forward," Sheridan said.
Among the additional topics that are expected to be discussed on the call include plans to capture TV advertising dollars, particularly as it relates to second-screen experiences and the potential for video advertising in the News Feed; expanded use for Graph Search and progress towards monetization; integration of Atlas and plans for a display ad network.
For the second quarter, Facebook reported adjusted earnings of 19 cents a share, 5-cents ahead of expectations on revenues of $1.81 billion, which also topped Street view of $1.62 billion.
Since its IPO in 2012, FB has experienced wide volatility following earnings announcements – ranging from an 11.7 percent drop in the second quarter of 2012 to a 29.6 percent rise in the second quarter of 2013. The stock has outperformed the S&P 500 by 68 percent year-to-date.
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