For Facebook's earnings, it's all about advertising tools

Key Points
  • Amid talk of telepathy and virtual reality, Facebook's ad tech still driving growth
  • Company has rolled out better tools for small advertisers than Google, digital marketers say
  • As Facebook ad prices climb, Wall Street expects first-quarter revenue to rise 45% to $7.8 billion and EPS to hit $1.12
Facebook CEO Mark Zuckerberg
Justin Sullivan | Getty Images

It can be easy to forget that Facebook sells advertising for a living — until it reports its finances.

In recent months, most of the attention paid to the company has centered on its dominant role as a provider of news — especially the political kind -- and its alleged influence on elections.

Facebook itself came out with a report last week about how it was combating fake news. And at its developer conference last month, the company highlighted its push into new technologies.

But when the company releases first-quarter results Wednesday afternoon, investors will get a vivid reminder that Facebook butters its bread with sophisticated ad technology.

"Facebook has become one of the leading platforms because of its analytics and targeting ability," says David Pierpont, vice president of social media in the Dallas office of Ansira, a St.Louis-based digital marketing agency.

While Facebook was talking up virtual reality, telepathy-based communication and artificial intelligence at its F8 conference in San Jose last month, Pierpont was more excited about new ad products for small and mid-sized businesses.

Known as Automated Insights, the new data package and accompanying user interface give even small-fry marketers the ability to easily roll out targeted ad campaigns.

Such online ad programs previously have been the exclusive domain of national brands.

"They've helped level the playing field," Pierpont says of Facebook.

Wall Street analysts expect Facebook to report first-quarter revenue of $7.83 billion, up 45 percent from the same period a year earlier, while earnings per share are pegged at $1.12, up from 77 cents, according to Yahoo Finance.

The company founded by CEO Mark Zuckerberg in 2004 to help Harvard University students meet now has ad products for each phase of the online marketing funnel, according to Pierpont.

"They have units for awareness, consideration and conversion," he says.

All this innovation has led to a boost in return on investment for digital ad buyers, which in turn has helped boost what they're willing to pay.

"Facebook ad prices are going up because so is performance," says Pierpont.

Others in the online ad business agree.

While Google, Facebook's larger rival, has been improving its ad tools across its services — including mobile search and YouTube — the ad-buying experience is "not as seamless" as on Facebook properties, says Grant Cohen, a general manager at Kochava, a mobile-measurement firm based in Sandpoint, ID.

"Facebook still provides better tools" than Google, especially for smaller advertisers with limited digital marketing expertise, says Cohen.

For example, marketers can create a mobile ad campaign across Facebook, Instagram and Messenger from one "service dashboard," Cohen says.

That helped drive Facebook ad prices higher, he says.

However, Google has narrowed the gap in the last six months, especially in mobile ad targeting, according to Cohen.

And because consumers will stand only so many ads on their mobile devices, Facebook's ability to sell ever more ads is limited. Facebook warned on its Q3 2016 earnings call that the number of ads it could cram into users' news feeds would slow meaningfully in the second half of 2017, and that deadline is almost here.

So to maintain its robust sales growth, then, the company will have to keep improving its ad tools — even as it works on more exotic projects.