This Could Be Massive for Facebook Stock
Earnings season is here. Will Facebook Inc (NASDAQ:FB) stock investors be rewarded one more time?
In case you missed the profit train, here’s what has happened so far. Since entering 2016, Facebook stock surged 16.3%. The company reported earnings in January and April, beating Wall Street’s expectations on both occasions. In particular, FB stock climbed substantially higher in the trading sessions following those earnings releases.
The company is going to report its second-quarter earnings in less than a week and analysts have pretty high expectations.
On average, Wall Street analysts expect Facebook to generate $6.01 billion in revenue, which would represent a whopping 48.8% growth rate year-over-year. Analysts are also forecasting $0.81 in earnings per share (EPS), a 62% improvement over the year-ago EPS. (Source: “Analysts,” Yahoo! Finance, last accessed July 20, 2016.)
Of course, expectations were also high in previous earnings seasons, but in the past year, Facebook still managed to beat analysts’ EPS estimates every single quarter.
For a social media company, user growth is key. Besides the financials, impressive user growth quarter after quarter helped bring Facebook to the center stage of the social media industry. But with 1.65 billion people already using its service, how can Facebook further grow its userbase?
Source: Facebook Inc
Well, based on the chart above, the momentum in Facebook’s user growth still looks strong. However, if MAU growth starts to level off a bit, there is still a way for Facebook to cheer up investors—monetization.
In case you haven’t noticed, the company’s revenue growth has been way faster than its user growth lately. The reason behind that was Facebook’s improved advertising strategy. By using video ads in its successful native advertising strategy, Facebook’s monetization metrics have been increasing at an impressive pace. In the first quarter of 2016, Facebook’s worldwide average revenue per user (ARPU) surged 32.8%. (Source: “Facebook Q1 2016 Results,” Facebook Inc, April 27, 2016.)
Also, keep in mind that despite being in the competitive social media business, Facebook’s users and profits are well protected from challengers. This is in part due to the network effect. Essentially, when everyone you know is on Facebook, you might want to join too. The fact that Facebook is the largest social media company on earth means newcomers to the industry will have a hard time taking users and profits away from Facebook.
In addition, don’t forget that Facebook is much more than just one app these days. Through strategic acquisitions, the company has gotten ahold of some of the most popular social apps in the world. Facebook bought Instagram back in 2012, started rolling out ads via the “Instagram” ad last September. By February, Instagram already had more than 200,000 advertisers. (Source: “200,000 Advertisers on Instagram,” Instagram Official Blog, February 24, 2016.)
Then there’s WhatsApp, which Facebook acquired in 2014. The “WhatsApp” app reached a whopping one billion monthly active users in February. It is by far the most widely used messaging app in the world. (Source: “One Billion,” WhatsApp Official Blog, February 1, 2016.)
Facebook doesn’t really say much about the performance of Instagram and WhatsApp in its earnings reports, but management might shed some light on user growth and the monetizing progress of these apps in the upcoming earnings conference call.
The Bottom Line on Facebook Stock
FB stock just hit an all-time closing high. The company is scheduled to release its second-quarter earnings after the closing bell on Wednesday, July 27. If the earnings streak keeps going, the uptrend in Facebook stock could very well continue.