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Facebook Earnings Preview: What Wall Street Is Thinking (Update 1)

Updated from 9:27 a.m. to include thoughts from JPMorgan analyst.

NEW YORK (TheStreet) -- Facebook (FB - Get Report) is expected to report fourth-quarter earnings after Wednesday's closing bell and given the troubles at Yahoo! (YHOO) when it comes to advertising, investors will be looking to see if those ad troubles carry over to the world's largest social network.

Facebook has been able to demonstrate to advertisers that its 1.19 billion users are well worth reaching despite concerns about teenagers fleeing the service. Last quarter, Facebook earned 25 cents a share on $2.02 billion in revenue. Advertising revenue accounted for $1.8 billion of that, soaring 66% year over year, as more companies realized the benefits of social media in hawking their wares.

As the world increasingly goes mobile, Facebook appears well positioned for this, as mobile advertising revenue last quarter accounted for $881 million. The Menlo Park, Calif.-based Facebook had 874 million mobile active users (MAUs) at the end of the third-quarter, with 507 million of them using the service daily at the end of the quarter.

WATCH: Facebook Under Pressure to Deliver Advertising Dollars

Facebook recently announced it would start rolling out Facebook ads in third-party mobile apps, allowing developers to better monetize their apps in a world where increasingly a large percentage of apps are free. This led to speculation that Facebook would start a mobile ad exchange, following its FBX for desktop. Sources close to the situation, however, have confirmed that isn't the case.

Aside from mobile strength, analysts will be looking to hear more color on Instagram, which introduced ads during the quarter. Michael Kors (KORS) was the first advertiser on the platform, and analysts will be listening intently from Facebook CEO Mark Zuckerberg, Chief Operating Officer Sheryl Sandberg and Chief Financial Officer David Ebersman on how engagement is going. Instagram also unveiled Instagram Direct during the quarter, a feature that allows users to send Instagram Direct messages to up to 15 different people, putting it in competition with Twitter (TWTR) and Snapchat.

Analysts surveyed by Thomson Reuters are looking for Facebook to earn 27 cents a share in the fourth quarter on $2.33 billion in revenue.

Here's what some analysts on Wall Street are expecting from Facebook's results:

Bank of America Merril Lynch analyst Justin Post (Buy, $64 PT)

"Reports Wed 1/29 and we expect revenue upside from growing advertiser adoption and targeting improvements, driving ad pricing growth. For 4Q, our rev/adj. EPS of $2.33bn/$0.27 are in-line with the Street (at $2.35bn/ $0.27). FB likely will need to report over $2.4bn in total revenue and $1.1bn in mobile revenue to maintain stock momentum. Commentary on revenue potential from video and Instagram are also important for the call, in our view, given more difficult comps ahead in 2Q."

Sterne Agee analyst Arvind Bhatia (Buy, $60 PT)

"We think 4Q results will further cement FB's positioning in and growing share of digital advertising. We expect mobile advertising revenue to be up 25% sequentially (+260% y/y) and represent 52% of advertising revenue mix. On the earnings call, we expect more color on issues such as 1) "teen engagement"; 2) Ad Load in News Feeds; and 3) Video Ads on Instagram and Facebook. Reiterating Buy and $60 target."

Cantor Fitzgerald analyst Youssef Squali (Buy, $65 PT)

"We expect FB to report solid results on 1/29 with revenue growth at ~53%, propelled mainly by mobile, and EBITDA margin at ~58%. We remain positive on FB, given increased ad load over the holidays, Facebook's position as the largest/most engaged mass reach Internet platform for advertisers (88-100M U.S. users during prime-time hours every night), unmatched targeting potential, and now a potential mobile ad network in the works."

Piper Jaffray analyst Gene Munster (Overweight, $57 PT)

"While we don't have a solid read on FB's Q4 results (Street expecting EPS of $0.27 on revenue of $2.34 billion), we believe there are three core elements investors will focus on
at the earnings call and beyond Q4. First, we believe investors are contemplating how to think about ad load following the early January WSJ article suggesting Facebook CEO
Mark Zuckerberg is paying more attention to top line results. Second, we believe we could get some early feedback on Instagram and potentially timing on a video product.
Finally, we believe that Facebook may give some directional thoughts on CY14 without explicit guidance."

JPMorgan analyst Doug Anmuth (Overweight, $62 PT)

"We expect strong 4Q13 results with likely upside to our $2.14B in advertising revenue (+61% Y/Y, +19% Q/Q) driven by Mobile and Desktop News Feed ads. We believe advertiser demand in the quarter continued to build and comScore data suggests continued strong engagement, especially in December. Facebook's mobile advertising should surpass desktop in 4Q13 and we expect mobile to account for 63% of total ad revenue in 2014. Beyond 4Q results, we'll be focused on management's commentary on ad load, teen engagement, 2014 opex growth, and the launches of Instagram ads and auto-play video ads on Facebook."

-- Written by Chris Ciaccia in New York

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