Solid Results Forecast For Facebook In Second Quarter

Wall Street may not have warmed to Facebook yet -- but the company is expected to report another solid quarter on Wednesday, fueled by continued mobile ad growth.

Analysts, on average, project second-quarter revenue of $1.62 billion for the social networking giant -- up 37% from a year ago -- and earnings of 14 cents a share, up two cents. That compares to a 39% revenue gain in the first quarter, and profit that was flat from a year earlier at 12 cents a share.

Advertising revenue, which accounts for the vast majority of Facebook’s overall sales, is forecast to rise 40% to $1.39 billion, according to a research note released Monday by JP Morgan analyst Doug Anmuth. Mobile advertising, which was virtually nil 18 months ago, is estimated to account for $446 million of that amount, or nearly a third of ad revenue.

That would represent a gain of 19% from $375 million in the prior quarter. Desktop advertising, by contrast, is expected to fall almost 4% from a year ago, and 8.3% from the first quarter to $944 million, as ad dollars continue to shift to mobile devices. Payments revenue is projected at $205 million, up 7% from a year ago.

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Underscoring its commitment to mobile expansion, the company announced on Sunday that its “Facebook for Every Phone” app, designed for feature phone users in emerging markets like India and Indonesia, now has more than 100 million monthly users. While reaching that milestone will not bear on Facebook's second-quarter results, it highlights the company's efforts to play a key role in mobile as those markets mature. 

As of the end of the first quarter, Facebook had 751 million monthly mobile users in all.

Facebook has recently launched other initiatives that will not necessarily bear fruit immediately, but could help bolster revenue over time. These include its move to simplify the ad-buying process by cutting the number of ad formats it offers in half. It also rolled out its upgraded search service more widely after announcing it in January.

If Facebook eventually begins showing ads on Graph Search as expected, that would add another revenue stream. Also looming on the horizon is the long-rumored introduction of video advertising later this year, which the addition of video on Facebook-owned Instagram this month did nothing to dissipate.

We believe ad formats/products like Newsfeed ads, FBX in the Newsfeed, video ads in 2H13, Mobile App Install Ads, and Custom Audiences are likely to be key drivers of growth going forward,” stated Anmuth in his earnings preview. Still, investors have remained skeptical that Facebook can maintain strong sales growth and user engagement.

The company's stock closed Monday at $26.05 -- 31.5% below its IPO price of $38 a share in May 2012. Lately, the rise of popular messaging apps like WhatsApp and SnapChat -- along with the continued growth of non-Facebook properties like Twitter and Instagram -- have raised questions about the social network's hold on younger users.

Amidst heightened competition, Anmuth noted that Facebook’s share of total minutes across desktop and mobile (smartphones only), increased to 15.7% in May from 11.8% a year earlier. Even so, analysts will be looking to get more detail from CEO Mark Zuckerberg and other Facebook executives during the company's earnings conference call on user engagement and ad performance during the quarter.

One thing that investors and analysts are not likely to get is any formal revenue or earnings guidance for the current quarter or the rest of the year, which Facebook historically has not provided.

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