Oculus Revenue Potential Will Be In Focus In Facebook Q4 2015 Earnings

  • Facebook Q4 2015 earnings are scheduled for release on January 27.
  • The company had an exceptional 2015 with a record high quarterly revenue and incredible stock performance.
  • Oculus adoption, Messenger/WhatsApp monetization, and core business growth will be in focus.

One of the hottest tech companies these days, Facebook (NASDAQ:FB), is expected to report its Q4 2015 earnings next week. Facebook stock had an incredible run in 2015 when it was one of the four FANG stocks to lead the S&P 500 top performers with a 35% return, and it reached a phenomenal 250% return since its IPO in 2012. As I described in an earlier article, Facebook is not the same company that went public a few years ago—it now takes a more holistic and comprehensive view of its business. The company develops new revenue streams to generate more revenues and decrease the company’s dependency on ads on its popular social media platform.

Probably the most exciting initiative that Facebook will launch in 2016 is the Oculus Rift that the company will start shipping at the end of March to customers who pre-ordered and paid $599 for the device. There are high expectations that Facebook’s VR device will outperform its competitors, lead the category, and drive significant revenues for Facebook. Oculus Rift will be Facebook’s first attempt to enter the consumer electronics market, and it is very hard to estimate how the market will receive the Rift and what the adoption rate will be. The upcoming earnings release is expected to shed some light on Facebook’s estimations regarding the Rift’s revenues, and it will probably be at the center of the company’s 2016 guidance.

Another new business initiative that will be on investors’ radar is Facebook’s monetization progress in Messenger. The company announced a number of potential revenue streams for Messenger that include P2P payment transactions, Uber ride-hailing directly from the app, third-party apps, and further e-commerce capabilities. Also, Messenger's "step-brother," WhatsApp, is expected to attract attention following WhatsApp’s announcement that the company will discontinue the $1 fee and look for new ways to monetize the service by connecting subscribers to service providers and streamlining conversations that were otherwise conducted through text messages and phone calls.

Aside from the new business initiatives mentioned above, the market is very concerned whether Facebook could continue to grow as it did in previous years. As shown in the chart below, Facebook generated increasing amounts of revenue every quarter in the last five years at an astonishing pace of 46% YoY and 10% QoQ.

FB_chart 7_011916

In the recent earnings release, Facebook demonstrated great strength in mobile when this segment accounted for 78% of the company’s revenues. Increased ad prices, higher video views, and higher advertiser count enabled the company to deliver record high revenues that beat analysts’ expectations and triggered a rally in Facebook stock price. These factors impact Facebook’s core business performance and are at least as important as the progress of the new business initiatives. As the company will provide 2016 guidance, investors should pay equal attention to the development in Messenger and WhatsApp monetization as well as continued growth of Facebook’s core business. If Facebook provides 2016 revenues guidance that reflects an impressive core business growth and Oculus adoption rate, investors’ confidence will strengthen and the stock price will continue to soar.

These are the comparable figures to watch in the upcoming earnings:

Q4 2015 Consensus Q4 2014 Actual 2015 Consensus 2014 Actual
Revenue $5.36B $3.85B $17.45B $12.47B
EPS $0.68 $0.252 $1.44 $1.12

Source: Thomson Reuters


Facebook Q4 2015 earnings are due for release next week amidst growing concerns of potential growth headwinds. The company will publish its long-awaited 2016 guidance that will include official estimate of the Oculus contribution to Facebook’s total revenues. While Oculus guidance is expected to attract most of the attention, other factors like Messenger/WhatsApp monetization and core business growth will also be in focus.

Lior Ronen Lior Ronen   on Amigobulls :
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