Facebook Q1: what investors would like

<p>Netflix, Microsoft, Alphabet, Twitter, Apple—the Big Tech earnings season has been quite a washout. Can Facebook, which lately has had a more robust record, save […]</p>

Netflix, Microsoft, Alphabet, Twitter, Apple—the Big Tech earnings season has been quite a washout.

Can Facebook, which lately has had a more robust record, save investors’ day, or will it too succumb to the trend?

 

Here’s what Wall St. is expecting from Facebook’s first quarter (Q1) report, according to Thomson Reuters’ up to the minute consensus forecasts.

  • Earnings per shares (EPS) up 50% year-on-year to $0.63
  • Revenues up year-on-year to 48.4% to $5.258bn

 

At a more detailed level, investors are likely to watch the breakdown of revenue generation.

Whilst no one expects advertising to take a back seat, a 21% fall in payments and fees to £204m in Q4, was a moderate negative and will become more so if it turns into a trend.

Additionally, the mismatch of revenues from Asia-Pacific (so far around a quarter of FB total) and that region’s MAU contribution (more than two thirds) would ideally for investors, begin to re-balance, rather than pretty much stagnate as it has for some years.

The other main financial point of focus is of course spending. After investors stung the group with a sharp sell-off a couple of years ago in reaction to a spending spike on projects and headcount, FB chopped operating expenses sharply year-on-year, though Q4 costs and expenses still rose 21% to $3.21bn, and R&D was $1.31bn.

 

FACEBOOK STAND AT AD TECH LONDON ILLUSTRATION_WIKIMEDIA COMMONS

Facebook stand at ‘Ad Tech’ conference in London, September 2010

 

Either way, it appears Facebook currently receives far less of the kind of punishment shareholders typically mete out to other companies, because it is perceived to have few real competitors.

Just ask Twitter. After persistent revenue slippage and poor growth across core metrics, despite the micro-blogging company’s strenuous and varied efforts, Facebook is still inexorably thundering towards a point when it could generate more revenues in a month than Twitter scrapes in a year.

By contrast, many parts of Facebook’s ever-growing array of add-ons and diversions look to be growing at rates that rival networks envy.

For instance, Facebook, announced Instagram revenues for Q4 were 10% ahead of many Wall Street estimates, though it didn’t break out absolute figures

Again, the balance of analyst opinion seems to concur that Facebook remains the top beneficiary of the adoption of mobile Internet trends with Facebook and Messenger edging all others in terms of growth.

With no viable challengers in sight, it appears the time for Facebook to begin missing estimates sharply has not arrived yet.

 

 

For performance criteria, engagement will, as always, be a key focus.

In Q4, the Monthly Active Users (MAU) rate was 65% of FB’s 1.6 million users.

Whilst few cogent consensus forecasts exist for MAU, anecdotal indications and our own basic estimates suggest MAU was flat-to-slightly higher in Q1, normally a slower quarter for the network’s trends.

Perhaps more important for FB, at this point in its evolution is traction of new advertising models, recently introduced into Instagram, and any commentary on these will also be a key focus.

These new ads are interactive, for instance with a specific call-to-action such as installing an app, or subscribing for a service.

Ad targeting tools already in place in Facebook were also made available in Instagram, as well as ‘back-end’ solutions, e.g. API to customise and automate traffic.

Media reports have suggested third-party agencies have been intermediaries in spending that was almost double the level of Q1 2015 for these new ads.

Existing advertising strategies, namely video, from which Wall St. banks forecast as much as $1.7bn in ad revenue in 2016, will also draw attention, although there’s a question mark over the utility of the nascent Facebook Live service for advertisers, for now.

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