| 1 | As social media giant Facebook Inc. prepares to release its second-quarter earnings results Wednesday, many analysts are saying, "Buy." |
| 2 | The company's stock hit an all-time high of $99.24 on July 21 and later flirted with the $100 mark. |
| 3 | And even though Facebook's shares closed down nearly 3 percent Monday, while the S&P 500 Index was slightly lower, some analysts see strong growth potential in its revenue from video and mobile. |
| 4 | In mid-July, Facebook became the fastest company to surpass a $250 billion valuation in the Standard & Poor's 500 Index after a 2.4 percent stock increase. |
| 5 | Facebook joined other tech companies such as Apple Inc., Microsoft Corp. and Google Inc. on the list of the most-valued companies. |
| 6 | "The trouble with Facebook is their success," said Brian Blau, an analyst with Gartner Research who covers the company. |
| 7 | "Every quarter since their IPO, they've done relatively good. This quarter typically isn't a strong quarter for a lot of tech companies - it's the middle of the year and summer. It (Facebook's earnings) may be more mediocre than good because of the seasonality." |
| 8 | Here are some key areas to watch in Facebook's earnings report on Wednesday. |
| 9 | Google Inc. highlighted its own video growth- through YouTube - during its earnings release last week. |
| 10 | Google CFO Ruth Porat said growth in YouTube watch time was up 60 percent year-over-year, while mobile YouTube watch time nearly doubled from a year ago. |
| 11 | Facebook reached four billion daily video views in the first quarter of this year, that's up from the 3 billion number COO Sheryl Sandberg had shared during the previous quarter. |
| 12 | In the fourth quarter of 2014, CEO Mark Zuckerberg said native video is very valuable because when someone uploads video to Facebook directly, the company can optimize the video and make it autoplay. |
| 13 | The second quarter could be interesting because Facebook is beginning to get a lot of video views, Blau said. |
| 14 | Advertising on video is basically the best on the market, said marketing automation and analytics company AppLovin's co-founder and CEO Adam Foroughi. |
| 15 | AppLovin particularly helps customers like Uber and Yelp that want to reach consumers on mobile. |
| 16 | The amount of money made on mobile is definitely something to watch this quarter. |
| 17 | Facebook's mobile advertising revenue represented about 73 percent of its total advertising revenue in the first quarter of 2015, up from about 59 percent of advertising revenue in the first quarter of 2014. |
| 18 | There were 1.4 billion monthly active users on Facebook in March 2015. |
| 19 | Of those, 581 million are mobile-only users. |
| 20 | Blau noted that it will be interesting to see how much more Facebook has grown users this past quarter. |
| 21 | "They've got a lot of penetration around the world," he said. |
| 22 | "It always surprises me yet more people to join in a significant way. We have seen some softening of user growth." |
| 23 | Video is a very lucrative area on mobile today, said Foroughi. |
| 24 | "We launched video about 18 months ago and are already $100 million in mobile advertising," Foroughi said. |
| 25 | "Video now makes up 70 percent of our business. It's 15-30 seconds explaining product to customers; it's like targeted T.V. advertising." |
| 26 | Spending will be an interesting area to watch, as it was quite high in the prior quarter. |
| 27 | GAAP costs and expenses for the first quarter of 2015 were $2.61 billion, an increase of 83 percent from the first quarter of 2014. |
| 28 | CFO David Wehner said expenses come from the broad range of investments the company is making in long-term growth, like Oculus VR and Internet.org's affordable Internet services. |
| 29 | Blau said a Tech Crunch report Monday, on Internet.org's one year anniversary, that Internet.org opening up to all carriers is an indication that the effort is starting to gain traction. |
| 30 | Facebook had warned about an increase in spending because of hiring (it wrote in its last earnings report that it expects headcount growth to continue for the foreseeable future), acquisitions ($433 million last quarter) and real estate expenses, Blau said back in January. |
| 31 | Blau will be watching for any announcements on Oculus. |
| 32 | The latest version of Oculus VR will ship in the first quarter of 2016. |
| 33 | "I've heard of all kinds of projects not made public," Blau said. |
| 34 | "It's hard to tell the size of those research projects. They can't rest on their laurels." |
| 35 | Investors will be curious to see how Facebook's "family of apps" - as Zuckerberg called WhatsApp, Instagram, Messenger and Facebook app - are doing. |
| 36 | There are 800 million people using WhatsApp and 300 million users on Instagram - 200 million of which are daily active users. |
| 37 | The company said it's still early, but it will grow the advertising on those platforms once advertising formats are working well for businesses. |
| 38 | Referring to WhatsApp, Zuckerberg noted that if Facebook is going to pay $19 billion for a company, it's going to have high expectations. |
| 39 | The amount of money Facebook gets from payments for games is something else to look out for, Blau said. |
| 40 | "We generate all of our payments revenue from developers that use Facebook on personal computers, and we expect that our payments revenue will decline in the future as usage of Facebook on personal computers continues to decline," Facebook wrote in its first-quarter earnings report. |
| 41 | Regarding payments through the Messenger app, Facebook could face additional regulatory requirements. |
| 42 | "Depending on how our Payments product evolves, we may also be subject to other laws and regulations including those governing gambling, banking and lending," Facebook wrote in the report. |
| 43 | "In some jurisdictions, the application or interpretation of these laws and regulations is not clear. To increase flexibility in how our use of Payments may evolve and to mitigate regulatory uncertainty, we have received certain money transmitter licenses in the United States and are applying for certain regulatory licenses in Europe, which will generally require us to demonstrate compliance with many domestic and foreign laws in these areas." |
| 44 | An average of 42 analysts on Yahoo Finance expect earnings of 47 cents a share on a non-GAAP basis for Facebook Inc.'s second-quarter 2015. |
| 45 | An average of 40 analysts polled by Yahoo Finance expect revenue of $3.98 billion. |