Three Signs of a Successful Facebook Earnings Report

Jacob Harper  |

The popularity of social media behemoth Facebook Inc. (FB) has never been in question, really since its inception. The company has been on a tear as far as amassing users is concerned, but monetizing those users has required a much greater effort.

Specifically, monetizing its mobile users. As more and more people, especially the young ones, migrate to their mobile devices to access the internet, successfully integrating ads into the mobile platform was long seen as not just a bonus to traditional desktop advertising revenue, but essential to the growth of the company.

In the second quarter of 2013, Facebook answered the mobile question in decisive fashion. The company reported that some 41 percent of their revenue came from mobile, signaling that Facebook had adapted to the times more quickly than anybody realized.

But of course, that was last quarter. Investors don’t care about the past, and as a tech company Facebook must stay myopically focused on continuing to adapt lest they slip in an increasingly competitive social media environment that will soon see major rival Twitter enter the public investment sphere.

Facebook reports earnings after the bell on October 30. While repeating last quarter’s astounding earnings beat is highly unlikely, if Facebook shows positive developments in three key areas, they could at least experience a nice bump:

1)      An Even Bigger Share in Mobile

The second quarter saw mobile revenue increase from 31 percent of the total to 41 percent. However, this still lags behind the total number of users who access Facebook via their phones. Last quarter, it was about half. It’s most likely far higher than that now, and the trend looks to have little chance of reversing.

If Facebook is able to report another 10 or so percent jump in mobile revenue, it would signal that they've been able to keep up with the sea change away from desktops while not alienating users with clunky ad insertions.

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2)      Positive Guidance for Instagram

In a quite smart move, in August 2012 Facebook purchased photo sharing social media service Instagram for $1 billion. Instagram is much more popular with young users than Facebook, and as a photo stream service is tailor-made for monetization. Instagram looks to be a major revenue stream for Facebook going forward, and provides insurance against that most dreaded of eventualities: Facebook suddenly becoming massively uncool.

As Instagram has caught on with the teenage market, it provides a bit of cushion for Facebook moving forward. The company just began rolling out ads, so revenue will be negligible. But guidance will be key. A projection topping $1 billion for the next three years would be a huge boon.

3)      Solid User Retention (with a Dash of Good Old-Fashioned "Beat the Competition")

Like the cautionary tale of MySpace, and Freindster before them, what could truly damage Facebook is if users simply migrate to one of their competitors. While many users certainly maintain separate accounts for separate services, Facebook is announcing just prior to the hotly anticipated Twitter IPO.

To be sure, while the core appeal of Twitter and Facebook are quite different, the companies have gone head to head in some burgeoning areas of social media, such as video sharing (Vine vs. Instagram Video.) More facets of social media competition are sure to follow.

The success of Instagram Video will be telling, as will any reports of user shrinkage in Facebook. While Facebook has approached total market saturation with some 1.2 billion users and thus can’t expect too many gains, if they have avoided losing too many customers to rival social media enterprises, they can breathe easier.

Though Facebook’s emphasis is less on attracting new users, than it is on getting existing users to check Facebook more often, a lack of significant “churn” would still be considered a victory for the company. Any significant uptick in regular users would be a big win.

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