Facebook Q3 2014 Earnings Preview

  • Facebook is expected to report its Q3 2014 results after market close on October 28.
  • The company undertook a number of moves in Q3, which should drive both topline and bottomline performance in Q3, as suggested by the operating metrics tracked by Nanigans.
  • We expect the company to report 48 cents earnings on revenue of 3.29 billion, well ahead of the street consensus of 40 cents earnings and $3.1 billion revenue.

Facebook Q3 2014 earnings preview

Facebook (NASDAQ:FB) is scheduled to report its Q3 2014 earnings results after the market close on Oct 28. The company has reported an earnings surprise for 5 successive quarters and is expected to deliver another earnings report ahead of analyst estimates. Having solved the question of monetizing the mobile user base, the company has not looked back, delivering huge growth in topline as well as the bottomline. We look back at the important events from Q3 and their impact of Facebook’s performance.

Facebook Q3 2014: The quarter in review

In late May, Facebook rolled out its auto-play video ads across seven global impacts. Q3 2014 will be the first full quarter to be impacted by revenues from video ads, and could be a major factor driving advertising revenue growth higher in the quarter.

In an earlier post in August we mentioned that Facebook made changes to its newsfeed in order to make the content more relevant and interesting from an end user point of view. The alteration was aimed at improving the engagement of Facebook’s billion plus monthly active users.

The quarter also saw Facebook launch a pilot program to test a ‘buy’ button feature. Facebook could eventually monetize this feature by charging a small commission for every sale through the social network. However, this isn’t something which will impact the Q3 performance of Facebook.

In early July, the start of Q3, Facebook announced the acquisition of LiveRail, a video ad tech platform. The acquisition will help to improve the ad targeting of video ads served n LiveRail’s ad network while also helping Facebook improve the quality and targeting of its own video ads. The LiveRail platform serves up to 7 billion ads per month, which is a huge opportunity and could drive Facebook revenue growth.

Facebook Revenue trends and earnings growth in recent quarters

Facebook has generated solid growth in topline over the last six quarters. The earnings growth has been exponential as compared to the revenue growth due to strict cost controls leading to slower growth of operating expenses. The chart below summarizes the revenue and earnings per share (EPS) trends at Facebook over the last few quarters.

Facebook revenue growth and EPS growth chart.

Facebook revenue and earnings trends

The topline growth in the first half of 2014 accelerated as compared to 2013, coming in at 72% YoY and 61% YoY in Q1 2014 and Q2 2014, respectively. This was a significant improvement from Q1 2013 (38% YoY) and Q2 2013 (53% YoY). The topline growth is driven by the solid growth in the advertising revenues, which were up by 82% and 67% on a YoY basis in Q1 2014 and Q2 2014, respectively. The EPS has risen in each successive quarter growing from 9 cents per share in Q1 2013 to 30 cents in Q2 2014.

Operating metrics continue to improve in Q3 2014

In a recent article, we had highlighted the improvement in Facebook’s operating metrics in Q3, based on Nanigans latest Facebook advertising benchmark report. The rise in click through rate (CTR up by 195% YoY) can be attributed to an improvement in ad targeting on the platform, which could be driven by the newsfeed changes made earlier in the quarter. The other drivers of topline, cost per mille (CPM up by 284% YoY) and cost per click (CPC up by 30% YoY) also saw accelerated growth in Q3, indicating that Facebook could deliver a strong Q3 2014 earnings report.

Facebook Earnings history

Facebook has delivered strong earnings report in most of the recent quarters. The earnings history for the last 8 quarters is summarized in the table below.

Earnings history

EPS estimate Actual EPS Revenue estimate Actual revenue Earnings surprise Revenue beat
Q2 2014







Q1 2014







Q4 2013







Q3 2013







Q2 2013







Q1 2013







Q4 2012







Q3 2012







Source: Estimize

Facebook has trumped analyst earnings consensus estimates in 7 out of the last 8 quarters with an average earnings surprise of 24%. On the revenue front, the company has beaten estimates in each of the last 8 quarters with an average revenue beat of 6%. Facebook has reported stronger earnings results over the last 4 quarters with an average earnings surprise of 29% and revenue beat of 6.4%. The higher earnings surprise in the 4 recent earnings reports is due to exponential growth in earnings, which was well ahead of the topline growth due to cost controls in play.

Facebook Q3 2013 Analyst estimates

Analyst consensus is for Facebook to report Q3 EPS of 40 cents on revenue of $3.1 billion. Taking into account the recent developments at Facebook, operating metrics improvements in Q3 and the cost controls at play, we estimate Facebook to beat the street consensus with an EPS of 48 cents on revenue of $3.29 billion.

In conclusion, Facebook is all set to report a strong quarter, as indicated by solid improvements in the operating metrics for Q3 2014. We estimate the company to report in-line with its recent earnings history, beating the street consensus on both the topline and bottomline. Our Facebook stock analysis highlights the valuation concerns surrounding the company. However, the company continues to be a compelling growth story with its huge topline growth and exponential earnings growth expected to continue into the next few quarters.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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