Hint: It sounds a lot like “shmobile.”
Wall Street has high expectations for Facebook and its Q3 earnings, which the company reports on Wednesday.
For the third straight quarter, the Street’s revenue growth expectations have increased. Facebook has only itself to blame.
Back in Q4 of 2015, analysts expected Facebook to announce 40 percent year-over-year revenue growth. Facebook delivered 52 percent growth. In Q1, analysts wanted to see 48 percent growth. It delivered 52 percent growth again. Analysts then predicted a 49 percent revenue jump in Q2. Facebook announced 59 percent growth.
This quarter, Wall Street has upped its expectations yet again: The Street wants to see 54 percent revenue growth from Facebook. Most folks seem to think Facebook will deliver.
How is that Facebook’s business is still accelerating at such a fast clip? It’s actually a simple answer: Mobile.
Mobile advertising is growing at an impressive pace. In the first half of 2016, mobile advertising accounted for 47 percent of all digital ad spending in the U.S., up from just 30 percent in the first half of 2015, according to a report from the Interactive Advertising Bureau. This year, digital marketers in the U.S. are on pace to spend more than $30 billion on mobile advertising.
In other words, marketers increasingly want to reach people on mobile devices. And with more than one billion daily active users on mobile alone, Facebook is one of the best places in town to spend some money.
For now, that is. The challenge for Facebook moving forward will be fending off competition from existing players, like Google, and emerging ones, like Snapchat, as these mobile ad budgets keep growing.
Plus, the company said on its last earnings call that it’s starting to run out of room in News Feed to show people ads. That means Facebook’s future revenue growth will depend on A) continued user growth so there are more eyeballs to monetize B) showing better ads that fetch a higher price.
For now, though, Facebook seems as if it can do no wrong. And it has the push toward mobile to thank.
Facebook reports Q3 earnings after market close Wednesday. Analysts are looking for profit of $0.97 per share on revenues of $6.92 billion. (As mentioned above, that would be roughly 54 percent growth over Q3 2015.)
RBC Capital’s Mark Mahaney expects Facebook to add about 40 million new users, which would put the company at 1.75 billion in total.