Photo Credit: Sarah Marshall

Facebook (FB) Information Technology - Internet, Software & Services | Reports February 1, After Market Closes

Facebook manages to astound investors with each passing quarter as preexisting and new initiatives continually exceed analysts expectations. In each of the past 4 quarters top line comparisons exceeded 50% while profitability also maintains a steady rise. The recent strength of Facebook comes on the back of the rapidly growing social media business, which includes the flagship Facebook product and Instagram. Both platforms continue to make remarkable gains despite the ongoing belief that the market is saturated. Tomorrow’s quarterly reports will highlight some of these gains but also give an early look at the monetization process of WhatsApp, FB Messenger, Oculus and any new products in the pipeline.

Analysts at Estimize call for earnings of $1.36 per share, roughly 70% higher than the same period last year. That estimate increased by 8% in the past 3 months, despite some turmoil the company faced following the election. Revenue for the period is expected to increase by 45%, snapping the current streak of 50% top line growth.

It’s not surprising that shares historically perform well during earnings season. Immediately following the print the stock typically rises by 4%, adding to the 16% gains made in the past 12 months.

Advertising remains the company’s biggest source of revenue since going public at the turn of the decade. In the third quarter, ad revenue jumped from $4.3 billion to $6.82 billion, marking a 60% change on a year over year basis. Much of the increase came on the back of a nearly 80% increase in mobile advertising, driven by 20% growth in Mobile DAUs and MAUs. As of September 1.79 billion users visited the Facebook platform on a monthly basis. In separate reports Facebook also indicated 1 billion monthly active users on Messenger and WhatsApp and 600 million on Instagram.

By opening up advertising revenue for the three other platforms, investors believe Facebook can add to its already robust top line. eMarketer estimates that ad revenue on Instagram could add $3.6 billion to total revenue by the end of 2017. Instagram’s new stories, which essentially mimics SnapChat, should offset the growing threat that SnapChat poses in the social media space. In only 5 months since launch, initial reports claim that 150 people use Instagram stories on a daily basis.

Facebook also started testing out a news feed style stream to Messenger’s 1 billion users. Additional efforts to monetize videos on the core Facebook platforms already appear to be doing well. The quick cooking videos that became popular during the quarter will help drive user growth and engagement moving forward.

As always, Facebook faces the serious threat of a slowdown. Any signs of weakness will surely hammer the stock in the coming days. Meanwhile, SnapChat’s IPO in the coming month and an unlikely Twitter turnaround might pose a problem for Facebook down the road. Facebook must also continue to address the idea of fake news and harassment that arose in the days following the recent election.