Mark Your Calendar: Facebook Inc.'s Q3 Earnings

One of the hottest stocks to watch this earnings season will be Facebook. Here's what investors need to know.

Daniel Sparks
Daniel Sparks
Oct 2, 2015 at 1:30PM
Technology and Telecom

While Facebook's (NASDAQ:FB) second-quarter results were better than analysts were expecting, the stock is down about 7% since the company reported results. The decline occurred along with a general pullback for most high-growth stocks during this period. Could the social network's third-quarter results help moderate the negative pressure on the stock and boost investor confidence in the company?

Facebook CEO Mark Zuckerberg in his office. Image source: Facebook.

This week, Facebook set a date for its third-quarter earnings report: Wednesday, Nov. 4. Ahead of the report, here's an early preview of the expectations, as well as a look at some of the key items beyond revenue and EPS that investors will be watching when the company shares the quarter's results.

Investors will continue to expect Facebook to grow at rapid rates when it reports third-quarter results.

Analysts are expecting revenue and EPS of $4.36 billion and non-GAAP EPS of $0.52, up 36% and 21% from year-ago figures, respectively. The discrepancy between expected revenue and EPS growth is due to a continuing theme of Facebook's high spending on head count, marketing, and cost of revenue as it invests aggressively in growth.

Analyst expectations for third-quarter revenue and EPS also imply meaningful growth sequentially. During Q2, Facebook's revenue and non-GAAP EPS was $4 billion and $0.50, respectively.

As always, investors will pay close attention to the company's reported active users -- particularly its monthly, daily, and mobile daily active users.

Monthly active users, or MAUs, is the most commonly cited metric for social media companies, making it one of the best ways to compare the total size of social networks. The metric refers to users who use the service at least once every month on desktop, mobile, or both. Facebook's MAUs in Q2 were a whopping 1.49 billion, up 13% from the year-ago quarter. If Facebook can achieve similar year-over-year growth in its MAU metric in Q3, Facebook will have around 152.5 billion users. But given the sheer volume of Facebook's monthly active users, a deceleration in year-over-year growth for MAUs is more likely, making 1.51 to 1.52 billion MAUs a more conservative and realistic estimate.

Facebook's daily active users, or DAUs, were 968 million in Q2, up 17% from the year-ago quarter. Expect around 990 million in Q3.

The social network's mobile DAUs, or the users who use Facebook at least once every day on a mobile device, were 844 million in Q2, up 29% from the year-ago quarter. Expect somewhere around 865 million in Q3.

Chart source: Facebook.

Engagement rate
Another key metric to watch is the engagement of Facebook's users, defined by the percentage of daily active users by total monthly active users. This gives investors insight into whether the social network's users are staying as engaged.

Recently, Facebook's engagement rate has leveled off. During Q2, Facebook reported an engagement rate of about 65%, in line with user engagement during the prior quarter. Has the social network been able to continue to maintain its 65% engagement rate in Q3?

Facebook will report third-quarter results after market close on Nov. 4. Following the report, the company will host a live earnings call at 5:00 p.m. EST.

Beyond revenue, EPS, users, and engagement, investors should check in on other important items such as advertising revenue growth and Facebook's progress on its developing businesses, such as Messenger, Groups, Instagram, and WhatsApp.