What to Expect When Facebook Inc Reports Earnings Tomorrow

Facebook will report first-quarter earnings after the bell on Wednesday. Here's what investors should expect.

Tamara Walsh
Tamara Walsh
Apr 22, 2014 at 12:45PM
Technology and Telecom

Facebook (NASDAQ:FB) is set to report its fiscal 2014 first-quarter earnings after the market close tomorrow. Investors who stuck with this stock from the beginning have locked in some serious profits. Shares of the social media giant have recovered nicely from its botched initial public offering -- up 60% from its IPO price of $38 per share. They currently trade at around $61 a pop. However, Facebook will need to deliver a strong first quarter if it wants this momentum to continue.

Source: The Motley Fool.

Conversation starters
Facebook has been on an acquisition spree lately, spending more than $20 billion to scoop up companies from Instagram to virtual reality upstart Oculus VR among others. Since the start of 2014, in fact, Facebook has spent $19 billion for social messaging app WhatsApp, and $2 billion for Oculus RV. 

Shareholders should look for more color on how Facebook plans to integrate these multibillion-dollar investments into its growth strategy going forward. The company has slowly begun introducing advertisements on its stand-alone Instagram platform. These in-stream ads have worked well in Facebook's News Feed, which is one of the reasons major brands have now taken to Instagram.

Yum! Brands (NYSE:YUM), which owns Taco Bell, was the first company to buy targeted ad space on the photo-sharing application. Last month, the fast-food joint ran its "Wake Up. Live Mas." campaign on Instagram to kick off its product launch for breakfast waffle tacos. Yum! Brands is also running similar ads on other media platforms including Facebook, Vine, and Pandora.

With more than 200 million active monthly users today, Facebook-owned Instagram should be able to grab other big advertising contracts in the future. Omnicom bought nearly $40 million in Instagram ad inventory recently, according to Adweek. And we should see more media buy where that came from as other big brand names begin to look to the photo sharing site.

Growing mobile ad revenue
For Facebook, this means investors can expect even stronger revenue growth from mobile advertising down the road. Its mobile ad business comprised 53% of its total ad revenue for the fiscal 2013 fourth quarter, up from just 23% during the same period a year earlier. This figure gets even bigger once we throw Instagram's mobile ad revenue into the mix.

While Instagram's contributions won't show up in Facebook's first-quarter results, the company should give us a better indication of what to expect in the quarters to follow. Furthermore, if Facebook sees strong demand for ads on Instagram's platform, investors would likely see it follow a similar path with its WhatsApp acquisition.

In short, investors can expect Facebook to give more color on how it plans to integrate its recent purchases into its core business when the company reports tomorrow. Shareholders should also get more insight into its growing mobile ad business. As it stands, analysts expect first-quarter earnings of $0.24 per share, on revenue of $2.35 billion in the period.