Facebook Q1 Earnings Preview: What We Will Be Watching

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Facebook (NASDAQ:FB) is scheduled to report its first quarter results on Wednesday, May 3rd. We expect the company to report revenue growth of around 44% year-over-year (y-o-y) and meet consensus estimates of $7.8 billion, driven by advertising revenue growth. Advertising revenue growth is likely to be driven by an increase in average price per ad and higher user engagement.fb-40

In terms of engagement metrics, there was 51% y-o-y growth in Facebook’s monthly active users (MAUs) to 1.86 billion in Q4 2016. We expect the company to report similar growth rates in Q1 2017 as well. Other important metrics to watch out for on Wednesday will be growth in mobile usage and Instagram’s revenue growth. We also expect Mark Zuckerberg to share some insights about Messenger’s monetization strategy going forward, considering the messaging app crossed the billion user mark in July last year.

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Key Metrics In Focus

  • Advertising Revenue Growth: Advertising revenue, Facebook’s primary source of revenue, grew 53% to over $8.6 billion in the fourth quarter of 2016 driven by growth in mobile ad revenues across geographies.

  • Free Cash Flow Growth: One of the impressive things about Facebook’s business model is its ability to increase free cash flows faster than its top line. Despite an 83% increase in capital investments in Q4 2016 over the same period in 2015, Facebook’s free cash flows increased 36% y-o-y in the quarter.

  • International ARPU: 88% of Facebook’s users are outside of North America, but they contribute less than 50% of the company’s total revenues. If we exclude the relatively mature European market, 69% of Facebook’s users in Asia-Pacific and rest of the world contribute just 25% of the company’s revenues. This presents a huge opportunity for growth for the social media giant, and this metric is likely to improve going forward, as internet connectivity and smartphone usage increases in these regions and digital marketing gains acceptance over traditional advertising channels.

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