Get The Ticker Tape delivered right to your inbox.

X

Earnings: Will Facebook Meet the Strong Q3 Expectations?

Share Print
November 2, 2016
Predicting Facebook market profability for upcoming quarter 3 earnings report.

If you’re active on Facebook (FB), you may have noticed more advertising spots popping up between friends’ posts. Those are targeted, based on demographics, prior posts and searches, and are driving some 96% of FB revenues, according to the social-media giant’s Q2 results.

Ad revenue grew by 57% last quarter, mostly from gains in mobile advertising, for which the company charges more than it does for desktop ads. Did those ads power another strong quarter? Investors will find out when FB reports Q3 results after the market closes today.

According to Thomson Reuters polls, FB is likely to turn in another robust quarter. “Facebook has had a string of very solid quarters and associated positive stock moves, and we are consistently asking ourselves when the beat-and-raise music might stop," Canaccord Genuity analyst Michael Graham wrote in a recent report to clients. "That said, we continue to find the company's multifaceted growth appealing.”

He’s referring to the revenue generated from other FB-owned social-media platforms, such as Instagram, WhatsApp and Messenger. What’s more, FB is adding new bells and whistles to its core platform to boost time spent on the site by its 1.7 billion subscribers, according to analysts. The company is adding a bevy of features, such as food ordering and delivery, movie ticket reservations and appointment bookings with service providers such as hairdressers and nail technicians, according to published reports.  

Some analysts say they are looking to Instagram and WhatsApp platforms to power earnings growth. FB has just begun to monetize Instagram, which it boasts has about 400 million active users. Will the company provide insight into revenues coming out of those platforms? WhatsApp’s user base recently passed the 1 billion mark, according to the company. Are there plans to capitalize on that user base through advertising or subscriptions?

Analysts reporting to Thomson Reuters are projecting earnings per share of $0.97, up 72% from the year-ago profit. Revenue is expected to reach $6.9 billion, higher by 53% over last year. Since going public in May 2012, FB has outpaced Wall Street’s expectations in every quarter but one.

Short-term options traders have priced in a potential share price move of 4.8% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform from TD Ameritrade.

On the call side, buyers have focused on the 135-strike price while put buyers have been present at the 130 strike. The implied volatility is at the 50th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time. 

FB, 12m, 2015-16

FIGURE 1: SOCIAL SOARING?

Shares of FB surged 45% since hitting a low in late January as quarterly results have consistently delivered higher revenues and profits. FB shares are trading well above their 200-day moving average. Chart source: thinkorswim® by TD Ameritrade.  Data source:  Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.