Social-media giant, Facebook (NASDAQ:FB), is reporting third-quarter results after the bell today. With social-media companies seemingly richly valued, and investors punishing companies for weak guidance, will investors "like" Facebook's earnings, or defriend the company entirely? Also, what does LinkedIn's (NYSE:LNKD) sell off tell you about investors' expectations for social-media companies.
Top and bottom-line growth is expected...
Consensus estimates are for Facebook to report $1.91 billion in revenue this quarter with EPS of $0.19. That compares favorably to last year's third-quarter figures of $1.26 billion and ($0.02), respectively. The Street has rewarded Facebook since then with its market capitalization more than doubling since last year's third quarter.
...but it has to be the right type of growth
Facebook's error riddled IPO and awful 2012 seem like old news but the echoes still linger today. The old refrain was that Facebook was tethered to payment processing fees from Zynga and they couldn't derive significant revenue from users migrating to mobile. Facebook answered this resoundingly in its 2013 second-quarter filings by growing mobile ad revenue to 41% of total advertising revenue. However, investors are looking to see if this will continue or if it was an anomaly.
Instagram: We're still waiting
The market has been patient with this purchase, but needs to hear some type of monetization plans. Facebook bought the photo-sharing app before it became public, but still doesn't make any money off of the service. Look for Zuckerberg to disclose if they will be bringing ads to the app. In addition, investors will be hungry for any new comments about Instagram; with Twitter's Vine exploding in popularity, investors need to see a tangible business plan for this service.
And we're tough judges
If today's harsh sell off of LinkedIn is of any indication, investors have high expectations for social-media companies and will hit the sell button if those expectations are not met. LinkedIn sold off more than 5% after investors deemed their earnings announcement insufficient.
Was it due to earnings or revenue? Absolutely not, the company beat both forecasts by posting revenue of $393 million and EPS of $0.39 versus expectations of $385 million and $0.32 respectively. The company sold off because LinkedIn's guidance wasn't as high as investors would have liked--$415 million to $420 million as opposed to consensus estimates of $438 million.
Perhaps this was to be expected, investors had bid the social-media job recruiter to an astronomical 23 times sales, so it was priced for nearly flawless execution.
Final Foolish Thoughts
Facebook is the social-media giant and has a long runway for growth. Wall Street has high hopes for mobile monetization and Instagram and may overreact to this particular report. Long-term investors should take a long, hard look at this company on any dips.
Jamal Carnette owns shares of Facebook. The Motley Fool recommends Facebook and LinkedIn. The Motley Fool owns shares of Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.