By Reed Albergotti
Facebook Inc. (FB) is scheduled to announce its third-quarter
earnings after the market closes Tuesday. Here's what you need to
know:
EARNINGS FORECAST: Net income of 31 cents a share is the
consensus of analysts surveyed by Thomson Reuters, compared with 17
cents reported a year earlier. Excluding certain items, analysts
project earnings per share of 40 cents a share, compared with a 25
cents last year. The company hasn't provided guidance for the third
quarter, but on the previous quarter's earnings calls, it warned
investors that its revenue may not grow at the same clip.
REVENUE FORECAST: Revenue of $3.1 billion is forecast, compared
with $2 billion reported a year earlier.
WHAT TO WATCH:
HINTS OF FUTURE DOLLARS: Facebook has been mum in recent
earnings calls on future areas of potential growth. Analysts have
asked a lot of questions about Instagram, which Facebook bought for
$1 billion a couple of years ago and has only started to monetize.
The photo-sharing app is crucial because it's popular with younger
users, who could be turned off by new ads. Facebook's new mobile ad
network, "Audience Network," which lets companies purchase ads
through Facebook that appear on other participating mobile apps, is
also a big question mark. Any hint that it's working, and that both
app publishers and advertisers are buying into it, would be welcome
news for investors. Another gray area is WhatsApp, the messaging
app that Facebook bought for around $19 billion in cash and stock
this year. Now the question is how the company will make money from
it.
USER GROWTH: Facebook said last quarter it has 1.32 billion
"monthly active users." In other words, nearly half the
Internet-connected world logs into the service in an average month.
That's impressive, and you can expect that number to grow in the
third quarter. But savvy investors will look at a different set of
numbers. First, they will peak at "daily active users," or the
average number of people who log into Facebook on a given day.
There were 829 million last quarter, and there will be more this
quarter. But a lot of them will come from the developing world in
markets where people are only now getting on the Internet. In the
U.S. and Canada, the company's most mature market and where it
generates most of its revenue, there were about 152 million DAUs.
Significant growth in the U.S. and Canada number is a sign the
social network is healthy and isn't losing out to newer social
networks like Snapchat, Twitter or its own photo sharing service,
Instagram.
REVENUE PER USER: The vast majority of Facebook's new users come
from the developing world. That shows Facebook is beating down the
competition and becoming the social network of choice everywhere
(except China, where it's banned). But it raises questions about
revenue. Last period, Facebook made about $6.44 per user per
quarter, on average, in the U.S. and Canada. But in Asia, it only
made $1.08 and 86 cents in the "rest of the world." Look for those
numbers to come up as Facebook makes big strides in those countries
to jumpstart a nascent digital advertising markets.
Write to Reed Albergotti at Reed.Albergotti@wsj.com
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