Video Ads, Programming in Focus When Facebook Reports 1Q -- Earnings Preview

By Deepa Seetharaman Features Dow Jones Newswires

Facebook Inc. is scheduled to announce its first-quarter earnings after the market closes Wednesday. Here is what you need to know:

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EARNINGS FORECAST: Facebook is expected to report first-quarter profit, excluding certain expenses, of $1.12 per share, compared with 77 cents a year earlier, according to data compiled by FactSet.

REVENUE FORECAST: Analysts predict Facebook will report quarterly revenue of $7.83 billion, up 46% from last year's $5.38 billion.

What to Watch

AD-BREAK STRATEGY: Investors will want more color on how Facebook's video ads are performing, especially given the company's plans to stop increasing ad load -- the number of ads shown to users in their news feeds -- in the middle of 2017. Video could help prop up what Facebook earlier predicted would be a meaningful drop in advertising revenue growth. Facebook started testing ad breaks -- ads that appear in the middle of a video -- in both live broadcasts and on-demand videos, it also tweaked a setting so sound is on by default in some videos. For now, Facebook's video product "remains uncertain ground for many advertisers, " according to a new report by GroupM, the ad buying unit of WPP PLC. GroupM found that for every 20 video ads served in the news feed, just one was watched for 10 seconds or longer and three watched for at least three seconds. Those doubts are unlikely to stop Facebook's revenue growth in the first quarter.

ORIGINAL PROGRAMMING: It's no secret that Facebook is gunning for TV ad budgets. But to do so, it'll need a "a robust premium content offering," says Wells Fargo analyst Peter Stabler. Facebook recently launched a new video tab within its mobile service and a new app for set-top boxes. It's also fielding pitches for TV-like original shows, including weekly series that last up to 30 minutes each. It's unclear how much Facebook is willing to spend on this programming. Last year, CEO Mark Zuckerberg approved a budget of more than $100 million for live-video deals. Investors will want an update on the original content strategy and get some sense for what Facebook could spend, Mr. Stabler said.

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GRAPHIC VIOLENCE: In the quarter, both Facebook and Alphabet Inc.'s Google got in hot water for objectionable videos that appeared on their sites. A series of high-profile suicides, murders and shootings have been broadcast over Facebook Live in recent months, attracting negative headlines and bad publicity for the social network. Last month, Facebook promised to conduct a review of its reporting process. Despite these concerns, Facebook and Google are expected to "dominate the industry because they are so large and potentially impactful to advertisers," Pivotal Research analyst Brian Wieser said.

Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com

(END) Dow Jones Newswires

May 03, 2017 05:44 ET (09:44 GMT)