Facebook ad growth on watch as shares return to peak

Facebook will release first-quarter results tonight and the company hopes to get a better response from shareholders than the one that followed its Q4 numbers.

After those, FB shares lost about 6% in a week.

True, since bouncing early in February, FB has added 15%.

But for a ‘growth’ stock with no profit grounding, and no pay-out policy, such signals from investors are particularly unwelcome.

In January, investors were irked by management’s tone of near religious zeal on its enormous spending plans.

At the same time, underlying earnings for the quarter came in so-so, and the network’s most closely watched operating metrics, monthly active users (MAU) and daily active users (DAU) were similarly meh.

DAU, the more exacting metric and perhaps more representative of ‘sticky’ user growth, needs to beat Q4’s 3% rate.

In January, FB officials made earnest efforts to (re)direct investor attention toward the lucrative monetisation potential of its ever-expanding digital advertising platform.

Investors are therefore likely to make advertising revenue growth, capacity and reach central focus points this evening, especially after advertising reached 90% of Facebook revenue some time ago.

Global consensus compiled by Thomson Reuters predicts total revenue grew 42% year-on-year to $3.535bn fuelled by a 50% boom in advertising revenues.

The ad sales forecast looks splendid.

If met, it would represent a respectable surge.

But it would be slower than the above 80% ad sales growth FB posted in Q1 2014.

Headline EPS is on average expected to come out at 40c a share.

It’s worth noting the EPS forecast trend shows increased market optimism of late, judging by a 4.2% average rise in newer forecasts posted in the last 30 days.

EPS forecasts from a couple of months ago trended as low as 30c.

Amid recent speculation that advertising on its platforms might actually have been pared back, to safeguard user experience, investors will also be curious about ad demand.

If projections of Facebook US digital ad market share hitting 25% this year (c. $6.82bn) are correct, pricing as a response to demand needs to remain robust.

Finally, the network will be expected if not to ‘come good’, at least to demonstrate a satisfactory growth of presence in video ads, with YouTube looming ever larger in terms of revenue importance for Google.

Tonight would also be a night FB might like to reveal further plans for WhatsApp, Instagram and Messenger advertising.

With 800 million, 300 million and 600 million users respectively though, they all fall short of the one billion users CEO Mark Zuckerberg has targeted as required before return on investment from them can turn more aggressive.

Progress by Facebook Audience Network, the purpose built in-app advertising platform for third-party ware, and by Atlas, the revived ad server, will also be of high interest for investors listening into its earnings tonight.

FB stock is tonight reverting to its regression centre line, currently overhead at c. $84.50.

Poorly received numbers will likely return the shares to $83-$81.55, especially with a slow-stochastic reading having placed the current up leg on watch.