Facebook expected to have continued growth in Q2 thanks to mobile

Facebook earnings: Here's what to watch
Facebook earnings: Here's what to watch

Facebook is expected to continue its trajectory of growth when it announces it earnings after Wednesday's closing bell, thanks to its dominance in mobile and digital advertising.

"We're really not seeing any signs of any challenges at Facebook," eMarketer analyst Debra Williamson said. "Everything is looking to us up and to the right. That would include both ad revenue and usage. The company has done a really remarkable job of establishing advertising products for any kind of advertiser, small or large, and any kind of objective."

Analysts are expecting Facebook to report $6.02 billion in earnings, according to the Thompson Reuters consensus estimate. Earnings per share are pegged at 82 cents.

The social media network reported adjusted first-quarter earnings of 77 cents per share on revenue of about $5.38 billion.

The social media platform had 1.65 billion monthly active users as of March, with more than 1 billion people accessing it daily. Many daily active users access Facebook through mobile devices, which bodes well for its advertising revenue. Mobile ads are considered to be future of digital advertising.

"The marketplace is shifting to mobile," said Jonathan Adams, chief digital officer at Maxus Global Media. "I wouldn't say it was faster than expected. We've been expecting this to come for a while. Facebook is very well positioned to do well in that space."

Adams said part of what makes Facebook's ads so valuable is an improved location-based targeting, meaning brands can reach people who are in vicinity of their products. He said Facebook was hesitant to release these features in the past because of concerns that users may object to being targeted. However, with brands like Google and Foursquare increasing location-based ads, Facebook was forced to develop them.

"Facebook has always known exactly where you and your phone are," Adams said. "They're only now tapping into that data to allow advertisers to serve the most relevant ads."

Advertisers and agencies have increasingly been talking about how effective Facebook ads have become for their campaigns, a vast improvement from a few years ago, Williamson added.

Deutsche Bank analyst Ross Sandler wrote in his market research report that he expected Facebook momentum to continue in Q2. He said ad revenue growth should be "consistent," and he recommended the stock as a buy.

However, up-and-coming Snapchat may pose a threat to Facebook's dominance, especially among youth. One media buyer mentioned that while the digital ad budget is growing, some brands are moving ad dollars away from Instagram toward Snapchat. They pointed out that Facebook is still the best place to reach the masses online, and Instagram tends to trend younger. However, Snapchat is "growing at everyone's expense."

Williamson is still optimistic on Facebook. She said that despite reports that younger users are flocking to other apps, Facebook usage rates are trending higher. She believes the de-emphasis on publisher-created posts in lieu for posts created by friends has encouraged people to stay on Facebook longer.

In addition to Instagram still being the dominant photo-based digital ad platform, Williamson said Facebook is also developing products that may be able to compete with Snapchat. Facebook Messenger recently announced it hit 1 billion users. In March, the company purchased the Masquerade app, which puts filter-like "masks" on people's photos. The product is similar to Snapchat's "lens" offering.

Williamson added that Facebook has yet to release ads on Messenger, which could provide another revenue stream. However, a source with knowledge of Facebook's plans said the company has no plans to announced Messenger ads this year.