This morning Facebook (FB) shares took off after its subsidiary, Instagram, announced its latest feature, Instagram Direct. Instagram Direct will allow users to send private picture messages and discuss them with up to 15 others.
In September, just before announcing its launch of paid advertisements, the photo-sharing company told the Wall Street Journal it had over 150 million monthly users. In today’s release co-founder Kevin Systrom claimed that over half of them are on the app every single day. When you have 75m+ users using your app every day, advertisers will pay a pretty penny to reach them. While 150 million users is no small change, the app still has much more room to grow into. Parent company Facebook touted an impressive 1.19 billion active users as of September 2013. With such a gigantic base of users and continued development of new features, prospects for revenue and earnings growth are looking robust, but the Wall Street expectations don’t match up to hedge fund forecasts.
Throughout 2013 sell-side analysts that make up the Wall Street consensus have consistently underestimated the growth rates of social media companies. Looking forward to the next 2 earnings reports we see further evidence of Wall Street under-representing the market’s expectations for Facebook. The information below is derived from data submitted to our platform by a set of Buy Side and Independent analyst contributors.
Our consensus is more accurate than Wall Street 69.5% of the time because it represents unbiased market expectations. By tapping into a wider distribution of over 3,300 contributors including hedge fund analysts, asset management firm analysts, industry experts, and students we are better able to capture the true market outlook.
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Looking forward to the next 2 earnings periods buy side and independent analysts are expecting Facebook’s earnings, including the new revenue stream from Instagram, to exceed the sell-side’s expectations for a third and fourth straight quarter. In the upcoming FQ4’13 report, which is expected at the end of January, the Wall Street consensus and our community are expecting similar numbers to be posted. For the next quarter out, FQ1’14, there is a much bigger differential in the expected EPS. The magnitude of the difference between Wall Street and our consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. Our quantitative research suggests that an upwards pre-earnings drift is associated with approaching an earnings report with a large differential between ours and Wall Street expectations as we are seeing for FQ1’14.
Our community seems to agree that Facebook will be no exception to the recent trend of social media companies beating Wall Street expectations.