We expect Facebook Inc (FB) to beat expectations when it reports third-quarter 2013 results on Oct 30, 2013. In the last reported quarter, it posted a positive surprise of approximately 44.4% and we believe that the company will continue with its upbeat performance in this quarter as well.
Why a Likely Positive Surprise?
Our proven model shows that Facebook is likely to beat earnings because it has the right combination of two key components.
Positive Zacks ESP: Facebook currently has a Zacks Earnings ESP of +7.69%. This is because the Most Accurate Estimate stands at 14 cents per share, while the Zacks Consensus Estimate is pegged at 13 cents.
Zacks Rank #1 (Strong Buy): Note that stocks with a Zacks Rank #1, 2 and 3 have higher chances of beating earnings estimates. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.
The combination of Facebook’s Zacks Rank #1 (Strong Buy) and Earnings ESP of +7.69% makes us confident of a positive earnings beat on Oct 30.
What is Driving Better-than-Expected Earnings?
Facebook’s increasing customer base, robust advertising revenues (up 62.5% year-over-year in the second quarter), higher mobile engagement (41.0% of ad revenues in the second quarter) and continuous roll-out of new products for marketers are the major catalysts.
Although Facebook-fatigue among teenagers is a concern for the company, we believe that its recent decision to allow users in the age group of 13 and 17 to make public posts is a positive step. So far, posts made by teenagers could only be seen by their friends and "friends of friends."
We believe that this is a clear cut strategy to combat rivals such as Twitter as well as attract more advertisers, particularly those targeting teenagers. Moreover, the recent partnership with Google’s (GOOG) online ad-placing service Doubleclick is a significant positive for Facebook going forward.
Other Stocks to Consider
Apart from Facebook, other stocks that are likely to beat estimates this earnings season include:
Melco Crown Entertainment (MPEL), with Earnings ESP of +6.45% and a Zacks Rank #1 (Strong Buy)
Kemper Corp (KMPR), with Earnings ESP of +11.36% and a Zacks Rank #1 (Strong Buy)