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Facebook, Inc. (FB) Q4 Earnings Preview: Mobile And ARPU Could Deliver Upside Surprise

 January 29, 2013 12:11 PM

(By Rich Bieglmeier) Facebook, Inc. (FB) is scheduled to report after market close on Wednesday, January 30, 2013, and will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. Wall Street anticipates that FB will earn $0.15 for its fourth quarter. iStock expects the social site to report earnings that will hit Wall Street's consensus number. The iEstimate is $0.15, too.

Facebook operates as a social networking company worldwide. The company builds tools that enable users to connect, share, discover, and communicate with each other; enables developers to build social applications on Facebook or to integrate their Websites with Facebook; and offers products that enable advertisers and marketers to engage with its users.

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In its limited publicly traded history, FB hasn't generated enough profit to meet Wall Street's projections. FB's first quarterly report card fell short by 188%, and the stock fell by 24.5% in the days surrounding earnings. Last time out, profits closed the gap but still missed the mark by 14%. Being closer to the target was enough for investors to push Facebook shares higher by 15.6% in the days around the announcement.

iStock expects a similar reaction from traders following Q4's release. The question is which side of the profit/loss scale tilts lower.

Wall Street will look at metrics such as the growth in Monthly Active Users (MAUs) and Daily Active Users (DAUs). Both numbers are on the rise; however, the growth rate for the duo is slowing in North America and Europe with most of the growth coming from Asia and the rest of the world.

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Investors are likely to react negatively if MAUs or DAUs growth slows or reverses. Without a growing base of active users, FB's revenue and earnings would slow, and dramatically. While revenue grew 32.3% in Q3, worldwide average revenue per user (ARPU) was $1.29, an increase of 4% from the third quarter of 2011. As you can see, FB depends on volume to make the top line go.

There could be some trouble on the average user metric fronts. Jainrain reports that Facebook's percentage of  "social login" on PCs fell from 54% to 49% in the fourth quarter compared to the third. And, in November, Nielsen said the average user spend 30 minutes less on FB than they did in September.

That's the bad news. On the very positive side, Facebook's "mobile login" tops the charts at 68% of the pie, which is its all-time high, according to Jainrain. In fact, comScore Mobile Metrix service reports that FB is the #1 overall app in the US.

Anybody that's followed the NASDAQ 100 member since its IPO knows that monetizing mobile has been the thorn in the paw. Kenshoo Social analyzed data from two million Facebook ad clicks and conversions found "20 percent (20.3 percent) of the company's ad revenue is now coming from mobile," which is up from 14% in Q3. We think Wall Street will cheer the increase if Kenshoo's work is correct; especially with the explosive growth forecasts for mobile ad spending. Gartner research believes "Global mobile ad expenditure is forecast to be US$11.4b in 2013, up from $9.8b in 2013, rising to $24.6b in 2016."

Those numbers are sick, and if Kenshoo Social has it right, Facebook, Inc. (FB) has a good chance to top the consensus estimate. According to Kenshoo, mobile's average cost per click is $1.38 versus 81 cents for ads on PCs. The difference should be more than enough to offset any slowdown in growth for MAUs or DAUs and help ARPU accelerate.



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