Facebook Inc (NASDAQ:FB) stock investors have cheered for the growth of one particular metric—monthly active users (MAUs). This time, though, there is another number to watch for and it might shed some light on whether Facebook stock can take it to the next level.
15-Ounce Device Send FB Stock Soaring
You see, when a company becomes the leading player in its industry, it will likely be put under the microscope. Facebook is already the behemoth in the social media business, with nearly five times the MAUs of Twitter Inc (NYSE:TWTR).
At 1.59 billion, Facebook’s userbase is just under one-fifth of the world population and more than half of the world’s population with Internet access. At this kind of penetration rate, investors might start wondering just how much growth is left in the social media giant. (Source: “Facebook Reports Fourth Quarter and Full Year 2015 Results,” Facebook Inc, January 27, 2016.)
Fortunately, Facebook managed to do something that few social media companies have done: expand into the hardware business. Moreover, Facebook’s products are in one of the hottest fields in tech today—virtual reality (VR).
The company acquired VR startup Oculus VR for $2.0 billion two years ago. Now the acquisition is about to bear fruit. Facebook unveiled the “Oculus Rift” VR headset earlier this year. Delivery of the $599.00 headset has started for more than 20 countries.
The big question now is this: what kind of sales is the Oculus Rift pulling in? Well, during the previous earnings call in January, Facebook’s founder and CEO Mark Zuckerberg said that he was “happy” with the preorders. In particular, he pointed out that the first adoption of VR will be gaming. He considers the “around 250 million people who have Xboxs, PlayStations, or Wiis” the initial market for Oculus Rift. (Source: “Facebook Q4-15 and Full Year 2015 Earnings Conference Call,” Facebook Inc, January 27, 2016.)
Note that 2016 could be the year for virtual reality to take main stage. In 2015, consumers only spent $660 million on VR gaming. This year, the number is expected to grow to $5.1 billion. (Source: “Virtual Reality Video Game Industry go Generate $5.1 Billion in 2016,” Fortune, January 5, 2016.)
Of course, investors should keep in mind that VR headsets are still in their nascent stage. Plus, the “Oculus Rift” probably won’t be contributing to Facebook’s financials in any significant way this quarter. That being said, if the company reveals better-than-expected results from Oculus Rift sales, it could change the value analysts place in Facebook’s VR segment.
In this earnings report, the main driver for Facebook’s financials would still be advertising. Last time it reported, Facebook’s ad revenue grew 57% year-over-year to $5.6 billion, making up more than 96% of the company’s total revenue.
An increasing userbase would be a great catalyst for Facebook’s ad revenue growth. At the same time, the company could benefit from its video segment. Video ads are more lucrative for Facebook compared to traditional text and image ads. Moreover, they are also in line with native advertising by fitting nicely with the other content.
The Bottom Line on FB Stock
Facebook has a solid track record when it comes to earnings. Last year, the company beat Wall Street’s earnings-per-share estimates every single quarter. The string of earnings beats helped Facebook stock climb more than 30% in 2015. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed April 26, 2016.)
This time, there are quite a few things that could affect FB stock post earnings. Other than the top and bottom lines, the market will also be watching for growth in Facebook’s userbase and any info on its Oculus Rift sales.