As Q2 Earnings Approaches, the Street Stays Bullish on Facebook's Mobile Prospects

Facebook's S-1 filing in early 2012 came with a rude awakening we're all quite familiar with by now: The world is going mobile, and Facebook's ad business needed to adapt fast in order to keep up with it.

Now, as Facebook prepares to report its second-quarter earnings this afternoon, something has shifted: Wall Street is actually optimistic about Facebook's mobile monetization prospects.

The Street's consensus calls for earnings per share of 14 cents on revenue of $1.62 billion, an estimate up from the EPS of 12 cents on revenue of $1.18 billion reported during Q2 of last year.

"While quarterly results at FB will likely remain volatile, we remain bullish on the direction and growth trajectory of the company," Sterne Agee analyst Arvind Bhatia wrote in a research note this week.

The biggest boon for some? The trending surge in Facebook's mobile revenue figures seen in recent quarters.

Mobile revenue accounted for nearly 30 percent of Facebook's ad business in the first quarter of this year, which was already a jump up from 23 percent in the fourth quarter of 2012. That's expected by some analysts to grow, albeit slightly, to a daily run rate of nearly $5 million on mobile ads alone.

Facebook has made it clear that at least one of its more recent ad products - mobile app installation ads - has been quite successful in driving growth, and J.P. Morgan's Doug Anmuth expects that to continue.

"We remain bullish as we believe ad dollars are increasingly shifting to online, mobile, and social and we expect Facebook to capture a growing portion of ad budgets going forward," Anmuth wrote in a research note.

The big unknowns are the usuals that we'll be looking for. Will the company break out any metrics beyond its usual stats on daily and monthly active users? That may be something to watch for, given Facebook's increasing competition for mindshare from other mobile-based sites like Snapchat, WhatsApp and International competitors like Line and KakaoTalk.

Perhaps Facebook will detail some engagement-based stats that could rebut the chatter that the social giant is losing its cool with younger audiences.

Another wild card: The oft-speculated eventual appearance of auto-play video ads in the News Feed. Bhatia and Anmuth both expect the ads to debut in the latter half of the year, a potential multibillion-dollar revenue-driving opportunity for the company. "We see online video advertising as a key incremental growth driver for FB in 2014," Bhatia wrote.

And lastly, the payments question still remains. Driven largely by social games on the platform, Facebook's payments business has changed much over the past two years, again a result of the sweeping shift to mobile. Zynga, which once reigned supreme as Facebook's largest gaming partner, has taken a drastic hit as users have moved away from playing games on the desktop to more casual gaming on the phone and tablet.

As a result, Facebook's payments revenue cut has flattened. The past year has seen Facebook try to distance itself from being too connected to Zynga, giving way to the rise of other smaller, more mobile-focused gaming outfits like King and, to a lesser extent, Wooga.

Analysts expect flat sequential revenue in the payments business, though a slight uptick in year-over-year growth.

I'll be covering the print as it hits the wire at 1 pm PT, with a liveblog of the earnings call from my colleague Peter Kafka to follow.

Facebook Tweaks News Feed Algorithm to Show More Relevant Ads

Facebook on Friday announced a slight change to its News Feed algorithm that aims to give greater weight to user feedback on undesirable ads. From now on, Facebook will try to show more relevant advertisements to users inside the News Feed, which may mean fewer ads delivered. Facebook's goal for marketers, the company said, is to deliver the right ads to the people who want to see them the most, even if it means fewer ads delivered overall.

Google, Hollywood and Drama, Drama, Drama

Hollywood is about drama. It's about suspense, it's about intrigue. I think our relationship with Hollywood is similar.

– Google Senior Vice President and Chief Business Officer Nikesh Arora on Google and the entertainment industry, in conversation at D: Dive Into Media

Google's Biz Chief: 50 Percent of Ads Will Go Online in the Next Five Years

Ads are part of the very fabric of our society, and have been for years. But ad execs want to stick with what works: It’s why the bulk of today’s industry ad budgets are still pointed at traditional mediums like television, print and the like.

Not for long, according to Google SVP and chief business officer Nikesh Arora, in conversation at the D: Dive Into Media conference on Tuesday.

“There’s currently about $800 billion in the global advertising market today. That’s a very large number, but online advertising accounts for less than $100 billion of that number,” Arora said. “There is a reasonable probability that over 50 percent of advertising goes online in the next five years.”

Ambitious, to say the least. We’ve been stuck in the same model for the better part of the past century, and companies like Google have spent the last decade trying to convince the ad industry that, yes, the Web can indeed make you money. That’s exactly what YouTube’s Robert Kyncl has been pitching with the online video arm of Google and its channels initiative, not to mention Google’s other potential ad businesses (which have indeed been successful).

Funny, considering Arora wasn’t about to say what online advertising would look like 10 years from now. He just knows that whatever it’ll look like, it’s going to be successful.

He gave a bit of insight into how it’ll get there though. “The big tipping point we're waiting for is Internet connected televisions,” Arora said. “We’re waiting for things going from ‘nice-to-have’ to ‘must-have.’” So basically, when his company can get that whole Google TV thing to take off — or perhaps others in the space wanting to do the same — we’ll see the tides of change begin to shift.

Check back with you in five years, Nikesh.

Stay tuned for video highlights from the session.

Apple’s smart Maps maneuver

“It might seem as if Apple chose its iOS 6 release last week to practice the biblical directive to love one’s enemy. For, by ejecting Google Maps from updated iPads and iPhones, Apple hath caused glorious comparisons to shine upon its foe,” Brad Hill writes for Engadget. “If most people were unaware of comparative feature sets and quality aspects that distinguish Google Maps from Apple Maps, every tech-loving person on God’s earth is an expert now.”

“I argue that replacing Google Maps with Apple Maps was shrewd, inevitable and an indicator that Apple understands the true battle it wages,” Hill writes. “By grafting its own Maps product into the nervous system of its mobile OS, Apple accomplishes two important things. First, the company’s primary mobile competitor is exorcised from the main body. This outcome might be viewed as the remedy to an ailment that never should have occurred... Second, Apple positions itself to harvest future local ad revenue. Apple Maps, despite its spatial confusions, has 25 percent more business listings (100 million of them) than Google does.”

Much more in the full article here.

[Thanks to MacDailyNews Reader "Joe Architect" for the heads up.]