Will Facebook crush earnings again?
SAN FRANCISCO — Facebook is scheduled to announce its second-quarter earnings after the market closes Wednesday. Here's what to watch.
REVENUE FORECAST: Facebook has exceeded quarterly estimates all but once since its May 2012 initial public offering. Analysts expect Facebook (FB) to generate $6 billion in second-quarter revenue, according to S&P Global Market Intelligence, up from $4.04 billion during the same period a year earlier. Research firm eMarketer estimates Facebook will generate $22.37 billion in net advertising revenues this year, up from $17.08 billion in 2015. During the first-quarter earnings call, Facebook finance chief David Wehner cautioned Facebook would face tough year-over-year comparisons because of the accelerating advertising revenue growth Facebook experienced in 2015.
EARNINGS FORECAST: Facebook is expected to report earnings per share, excluding certain expenses, of 82 cents, compared with 50 cents a year earlier.
USER ENGAGEMENT: In June, Citron Research's Andrew Left warned Facebook was losing eyeballs — especially young people — to Snapchat. This week Morgan Stanley reiterated its overweight rating, saying in a note to clients that Snapchat was not having a "material impact" on Facebook engagement or on the growth of people using the service at least once a day. Facebook tried to buy Snapchat for $3 billion in 2013. Snapchat now has 150 million daily active users. Morgan Stanley's Brian Nowak predicted Facebook would beat second-quarter estimates of user engagement. In fact, Nowak says his analysis shows Facebook is continuing to see growth on mobile and among 18-24 and 25-34 year olds. Facebook has been looking to get people to share more personal updates as news and entertainment have begun to crowd out the more intimate posts.
NEW ADVERTISING FORMATS: New advertising formats with better targeting for Facebook and photo-sharing service Instagram are gaining traction with marketers, analysts say, and have the potential to deliver larger budgets and new verticals such as travel. The ad formats give existing advertisers improved targeting and make it easier for new advertisers to begin placing ads, according to RBC Capital analyst Mark Mahaney.
Facebook shares surge on strong mobile ad growth
"The company's targeting capabilities and scale appear to be real competitive advantages that we believe are sustainable for the foreseeable future," he says.
Facebook says it has 3 million active advertisers, up from 2.5 million at the end of 2015. "We expect this number to continue to rise and the spend per advertiser to rise as well," Mahaney says. That's notable because advertising spend is rising even as more and smaller marketers sign up, "implying higher spend from even smaller advertisers, and increased budgets allocated to the platform from larger advertiser," he says.
GOLDEN AGE OF VIDEO: "We're at the beginning of a golden age of online video," Mark Zuckerberg said during Facebook's first-quarter earnings call.
Not only are Facebook Live and 360 Video boosting user growth and engagement, they are giving Facebook and Instagram a shot at the ad dollars typically spent on television, analysts say. Video ads are expected to boost Facebook's revenue growth in 2016 as marketers increasingly embrace video, especially on mobile devices.
Facebook goes all in on live video
In RBC Capital's February survey with AdAge of nearly 2,000 ad professionals, 69% said they were very or somewhat likely to buy or already buying video ads, a 3% increase from prior survey. Number of markets not interested or unlikely to buy auto-play video ad decreased 3 points to 31%
"We see Facebook’s continued push into more immersive content as critical to future engagement growth, and thus far we have been impressed with product changes," Mahaney says.
MESSAGING BOOM: eMarketer predicts that by 2018, the number of chat app users worldwide will reach 2 billion and represent 80% of smartphone users. Facebook owns two of the world's most popular messaging services: Messenger and WhatsApp.
"Messaging is a large opportunity at Facebook, and one in which the company is well positioned despite a strong competitive set," says Mahaney. His estimate: Messaging could generate more than $10 billion in 2020 revenue, more than 10% of Facebook's revenue.
Zuckerberg's Facebook Messenger launches 'chat bots' platform
Fueling optimism for revenue from messaging: the success of Asian apps and Messenger experimenting with chat bots. Its new chat-bot platform, announced in April, allows businesses to communicate with users.
"Messenger is gaining traction among marketers that want to experiment with chat bots," said eMarketer analyst Debra Aho Williamson.
But, Williamson says, "these are very early days for conducting business activities on Messenger.
"It remains unclear just how important it will be as a marketing vehicle," she said.