With Facebook.com already dominant in social media, Wall Street will watch this weeks’ earnings for signs the company can continue its meteoric growth in far-off new ventures.
Facebook — like many Internet companies — will surely face scrutiny as it reports its monthly active users for its namesake platform in quarterly earnings scheduled to be released Wednesday. Analysts told CNBC they expect both metrics to be similar to the third quarter.
“I’d say we’re definitely expecting it to be another ‘steady Eddy’ quarter,” said Neil Doshi, managing director at Mizuho Securities.
But the company’s plans for what’s next — from big data to virtual reality — also will feel the glare of the spotlight as user growth is expected to plod along on the flagship product.
Indeed, many of the top items on Doshi’s radar for earnings season aren’t really about Facebook at all — they’re about ancillary products like WhatsApp, Messenger and Instagram, and how their massive user base will be monetized.
The focus on new products comes as RBC Capital Markets analysts expect Facebook to report slower monthly active user growth for the fourth quarter than the third quarter (13 percent expected versus 14 percent for the third quarter of 2015). Similarly, they project a slight deceleration in advertising revenue growth, from 57 percent in the third quarter to 52 percent in Wednesday’s report.
Up until now, Facebook’s success hinged on bringing new eyeballs to advertiser content. But even with a slew of new features, the company is up against “the law of (really) large numbers” as RBC’s team writes.
To be sure, things look steady at the moment, as Doshi said, as newer ventures remain far from being fully monetized.
Facebook and its holdings have so far kept pace with fickle Internet users, mounting a transition from desktop to mobile that the RBC team calls one of the “the most successful business model pivot[s] across the Internet.” Facebook’s advertising revenue — the main artery of its sales and profit — is set to grow nearly three times faster than the overall ad market, Cantor Fitzgerald analysts pointed out in their latest note.
Facebook shares are, accordingly, on a bit of a hot streak, with up about 26 percent in the past year. Wall Street expects the company to post earnings of 68 cents per share on revenue of $5.36 billion — year-over-year increases of 25 percent and 39 percent, respectively, according to Thomson Reuters.
But as user growth steadies, especially in core markets like the U.S., the company has strived to monetize existing Facebook users, such as mobile app install campaigns and carousel ads, according to a report by personalized marketing platform AdRoll.
Facebook has also pushed harder to acquire users by spreading Web access through Internet.org.
“User growth actually reaccelerated last quarter, which is shocking … and there are lots of countries like Indonesia and India that still have a small population of users compared to total population there,” Doshi said. “The 4G advent could get people used to using Facebook apps who’ve never had access to the Internet before.”
Facebook has also invested in greenfield projects like virtual reality subsidiary Oculus, which debuted its Rift virtual reality headsets this month amid much buzz.
“We believe it is entirely plausible that VR is the future of computing,” wrote Robert Peck, managing director and internet equity analyst at SunTrust Robinson Humphrey, in a recent note, who added it has “the potential to disrupt several diverse businesses.”
“Headline acquisitions” and new ways Facebook plans to monetize its massive holdings of user data are key for Andrew Chanin, CEO of PureFunds, which offers ETFs, including a “big data” fund with holdings like Facebook, Twitter, Oracle and Alphabet.
“They are increasing the amount of data they are collecting, and are really just on the cusp of the extracting the value they have,” Chanin said. “They were able to develop facial recognition software with Instagram and Facebook pictures — one of the largest databases in the world. You collect the data hoping for value but you don’t always know what you are going to be be able to create. … They may have their best discovery be totally accidental.”
Still, while new ventures may provide a path forward for Facebook, they also call for creative cost management. Doshi said he’ll be watching how Facebook’s margins fare in Wednesday’s report.
“As they build out functionality in some of these new services, I’m sure that’s going to cost more money,” Doshi said. “They’ve been pretty aggressive as far as hiring as well. And what you have to remember is, Oculus Rift is hardware, and that comes at a lot lower margin.