Will Facebook Inc Please Investors With Its Quarterly Report?

By Andrs CardenalFool.com

Facebook stock is truly on fire lately, rising by more than 45% from its lows of the last year and trading near historical highs in the neighborhood of $105 per share. The company is scheduled to report earnings on Wednesday, Nov. 4, after official market hours and investors will be keeping an eye on several metrics.

Users and engagementIt all starts with users and engagement. Users are the blood of the business, and Facebook needs to keep users happily involved to attract advertisers and sustain growth over time.

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As of the second quarter in 2015, Facebook had 1.49 billion monthly active users, an increase of 13% from the second quarter in 2014. It makes sense to expect growth to slow down as the company keeps gaining size and market penetration over time, and Facebook is already much bigger than other industry players such as Twitter and LinkedIn .

Twitter had only 307 million monthly active users when excluding SMS fast followers as of the third quarter, growing by 8% versus the same quarter in 2014, and the platform gained only 3 million users sequentially. Twitter is considerably smaller than Facebook, and its user base is also growing at a much slower rate. With this in mind, it's really no wonder Twitter stock is down more than 30% in the last year while Facebook is surging to fresh historical highs.

LinkedIn has recently reported that it ended the third quarter with 396 million cumulative members, an increase of 20% in comparison to the same period last year. LinkedIn operates in a very particular niche. The company is targeted toward businesses and professionals, so it has a smaller potential market than Facebook or Twitter. However, the platform is still growing at a vigorous rate.

The main point is that Facebook is crushing other social media companies when it comes to users. Even if we look only at daily active users, the company had 968 million as of the second quarter, an annual increase of 17%. This means that Facebook has far more daily users than Twitter and LinkedIn have monthly users or total accounts.

It's good to see Facebook daily users increasing at a faster rate than monthly ones, since this signals strong engagement trends. Also, mobile daily active users stand at 844 million, a strong increase of 29% during the second quarter. This shows that Facebook is also doing great on mobile devices, a key growth segment in the industry.

On sales and earningsFacebook is a growth company, and the stock is valued for demanding expectations, so the company needs to deliver on the top line to justify its premium valuation. Total revenue during the second quarter grew 39% year over year to $4.04 billion. Management is expecting a deceleration in growth over the coming quarters as the company is facing tougher comparisons from a bigger revenue base and currency headwinds continue weighing on international revenue.

Wall Street analysts are on average forecasting $4.37 billion in revenue for the third quarter, which would represent an annual increase of 36.4%. Investors better take a look at the company's fundamentals from a long-term point of view as opposed to putting too much attention on short-term forecasts from analysts. However, it's good to know what the market is expecting, since this can have a big impact on price fluctuations immediately after the earnings release.

Mobile advertising revenue represented 76% of total advertising revenue last quarter, a considerable increase versus 62% of sales coming from mobile in the second quarter of 2014. Ideally, investors would like to see Facebook delivering consistent growth in this crucial segment.

Facebook is aggressively investing for growth, and this is hurting profit margins. Management is expecting total 2015 expenses to increase between 55% and 60%, and this will most likely weigh on the company's profit margins in the coming earnings release. However, as long as Facebook keeps gaining traction among users and producing healthy sales growth, this is money well-spent on behalf of investors' best interest over the long term.

The article Will Facebook Inc Please Investors With Its Quarterly Report? originally appeared on Fool.com.

Andrs Cardenal owns shares of LNKD. The Motley Fool owns shares of and recommends FB, LNKD, and TWTR. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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