Facebook, Inc. FB is set to report its third quarter 2015 earnings on Nov 4. The company reported a negative surprise of 3.23% in the last quarter and has an average negative earnings surprise of 2.61% in the last four quarters. Let’s see how things are shaping up for this announcement.
Our proven model does not conclusively show that Facebook is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Though Facebook’s Zacks Rank #1 increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult. Facebook has an earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 35 cents.
Things to Watch for in Q3
We believe investors are primarily focusing on growth opportunities from increasing online and mobile advertising spending. Mobile monetization has increased with a higher number of marketers, continuing investment in new products and robust performance of its newsfeed ads. Notably, Facebook derived 92.7% of its 2014 revenues from advertisement.
Facebook is working on a couple of new ad products designed to drive sales while generating more ad revenues. Reportedly, the latest advertising offerings from the company include Canvas (for making full-screen ads available through Newsfeed) and Shopping feeds under Favorites (for displaying stores on its Shop section).
Additionally, Facebook has been witnessing strong growth in its Monthly Active Users (MAU), which improved 13.4% in the last quarter to 1.49 billion. Of these, Mobile MAUs remained particularly strong, growing 23% on a year-over-year basis. At nearly 1.5 billion users, Facebook is the largest social media service.
Moreover, Facebook is popular in many emerging markets where most new users start with mobile. Since developed markets have relatively higher penetration rates, this positions Facebook for strong growth in the next few years. The company’s initiative Internet.org was conceived last year to provide free Internet access to regions where people cannot afford it.
Recently, the company announced its plans to provide free Internet to countries in Africa, which have very low penetration rates. In the U.S., the company is likely to benefit from its strength on the mobile platform.
Facebook is also developing some other robust platforms like Messenger, WhatsApp, Oculus and Instagram that can help it expand beyond the core business. Messenger boasts 700 million users while Whatsapp has a user base of 900 million and Instagram has 400 million users.
After reaching a considerable number of users for Instagram, the company is now aggressively monetizing the platform. The company recently announced that Instagram will now feature advertisements from all kinds of businesses and that too across the globe. Instagram also introduced 30 second spots for advertising while launching new formats like landscape photo and video to “give ads a more cinematic feel.” It has also unveiled a new ad format called Marquee, which it deems as ideal for movie premieres and big product launches.
The company has not only expanded its advertising offerings in the recent past but also taken a number of initiatives to boost the user base. These include adding more features to the platform to launching standalone apps like Boomerang. Prior to this, Instagram had launched several other standalone apps like ‘Layout’ for creating photo collages, ‘Hyperlapse’ for making time lapse videos and even a photo-sharing app named ‘Bolt.’
Apart from Instagram, Facebook collaborated with Seattle-based startup Pro.com to roll out a messaging service – Text-a-Pro, as part of its Messenger. This new facility will allow homeowners to find capable handymen for major as well as minor jobs.
However, significant rise in expenses and stiff competition from the likes of Twitter, Inc. TWTR and Alphabet Inc. GOOGL for ad dollars remain causes for concern.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment