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Facebook expected to top market forecasts with third quarter results - PREVIEW

Last updated: 06:44 01 Nov 2017 AEDT, First published: 22:44 31 Oct 2017 AEDT

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Wedbush expects Facebook to increase monetization of Instagram, WhatsApp, and Messenger

Social media giant Facebook Inc (NASDAQ:FB) issues a third quarter update on Wednesday evening with expectations running high.

The consensus forecast is for earnings per share (EPS) of US$1.29 on revenue of US$9.88bn, although the word on the Street is that EPS could be as high as US$1.40.

The focus could well be on the growth in advertising sales, which has been very healthy but slowing down slightly.

In the fourth quarter of last year, Facebook’s ad sales were up 53% year-on-year; in successive quarters the growth rate has slipped to 51% then to 47%.

Management has at least alerted the market to expect this slowdown as it has no plans to significantly increase the ad load on its core news feed.

Another key metric is daily active users (DAU), which was up 17% year-on-year in the second quarter and up 3% quarter-on-quarter to a staggering 1.33bn users.

Broker Wedbush Securities is forecasting DAU growth of 50mln to 1.37bn.

Founder and company boss Mark Zuckerberg wants the company to speed up the pace at which it harvests money from its messaging apps, so the market will be keen to hear how he plans to do this.

“The July global introduction of ads within Messenger, although currently still in testing, should drive meaningful top-line growth in future years as well, as Facebook finally begins to monetize Messenger’s 1.3 billion MAUs [monthly active users],” Wedbush said.

The broker is expecting the company to deliver figures above the consensus forecasts.

It is going for EPS of US$1.44 and revenue of US$10.18bn.

“Management has repeatedly articulated its expectation for revenue growth to decline throughout FY:17 in light of minimal ad load growth, and the comp from last year’s efforts to reduce the impact of ad blocking on desktop. In our view, however, the consensus revenue estimate implies a deceleration that is overly conservative,” the broker said.

“We expect momentum from the new ad products released over the past several quarters, combined with user growth and sustained engagement, to result in revenue growth of 45%, versus consensus’ implied 40% growth rate,” it added.

It has an “outperform” rating on Facebook and a 12-month price target of US$225.

Facebook shares currently trade at around US$180.

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