Facebook pre earnings expect incrise momentum

Due to impressive results Facebook’s stock are rising by 30% over the last six months , many investors will be on their heels on October 28, to see if the company can keep its growth momentum whole with Q3 2014 earnings. In the second quarter the company posted 61% profits growth, along with a 17 % point improvement in the GAAP operating margin. We guess the company to show solid results in the third quarter ,fueled by its strategy to focus on mobile devices, improve ad products and grow the number of marketers on the platform.


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While we expect profitability to improve in the third quarter ,we’d like to remind investors that various factors such as incremental operating costs due to closing of WhatsApp and Oculus acquisitions, along with rise in core operating expenses will weigh on the company’s profitability post Q3., we believe there is huge long-term potential for the company to expand its advertising revenue from the U.S. and abroad in  terms of revenue growth.

Our price approximation for Facebook stands at $65.50, implying a discount of about 20% to the market. We forecast Facebook’s revenue and EBITDA to grow meaningfully from $7.9 billion and $4.9 billion in 2013 to over $42 billion and $30 billion by the end of our predict horizon in our model.

Ad Revenue Growth to Be Solid:

Facebook posted stellar ad revenue growth of 82% and 67% in the first quarter and second quarter of 2014. Dduring the first two quarters this was primarily driven by solid growth in average ad pricing, which rose by 118% and 123%. Strengthening mobile monetization and more targeted advertising are fueling this growth. During the third quarter, we again forecast strong year-over-year growth in advertising revenue.

On the other hand it could be lower than than 67% level seen in Q2 due to tougher year-on-year comparisons.

Mobile monetization increased by 151% in Q2 and accounted for 62% of total ad revenues during the quarter. Mobile daily active users rose by 39% year-over-year to 654 million in June, which comprised for 79% of 829 million total daily active users. We expect strong growth in mobile monetization in the third quarter as well driven by higher ad pricing. Due to a continued shift from desktop to mobile the total number of ad impressions is decreasing, , Facebook has made its platform more effective for marketers by increasing the proportion of feed-based ads and making the interface less cluttered.

Another reason underlining Facebook’s success has been its ability to bring more advertisers onto its platform. Around 30 million small businesses have Facebook pages, and over 1.5 million of them are active marketers. With Facebook focusing on making its mobile ads as interesting and likeable as regular content, we trust this will bring even more marketers to the platform in the future.

Growth In International ARPU And the Eco-System Will Drive Future Demand:

We expect international markets to be a source of long-term growth for Facebook. Although Africa, Asia, South America represent for a large proportion of the world’s population, they don’t contribute significantly to the company’s revenues. While the average revenue per user for the U.S. stood at $6.44 in Q2 2014, the figure for Europe, Asia and rest of the world stood much lower at $2.84, $1.08 and $0.86, in that order.

 We trust there is a tremendoust opportunity for the company to raise its monetization from the the international markets.

The online advertising market is expected to show rapid growth in developing markets, and this will increase the company’s top-line. We will keep a track on ARPU growth from these geographies in the coming quarters.

The company is now delivering over 1 billion video views per day, and its initial tests of video advertising have proved successful. The recent acquisition of LiveRail video will further strengthen FB’s position in the rapidly expanding online video advertising market.

 At a glance:

Type:  Public

Founded:  February 4, 2004

Headquarters:     Menlo Park, California, US

Founders:

Mark Zuckerberg

Eduardo Saverin

Andrew McCollum

Dustin Moskovitz

Chris Hughes

Sheryl Sandberg

Industry:  Internet

Website: www.facebook.com

Type of site: Social networking service

Current status: Active