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The Wall Street “consensus” is that Facebook is going to post utterly miserable ad revenue growth today – 19% year-over-year.To put 19% in context, consider that Google, which had its IPO in 2004 and has $40 billion revenues, grew its entire business from that huge base by 21% in Q2.
19% would be a drastic deceleration of growth for Facebook. In Q1, it’s ad revenues were up 37% year-over-year.
So why are the estimates so low?
It’s not because Wall Street thinks Facebook is a lousy company. Most of these same analysts say Facebook should have a higher stock price – and therefore market cap – than it does today, and Facebook is trading at a ~15X revenue multiple, versus Google’s ~5X revenue multiple.
The truth is, many of these analysts are being much more cynical than that.
What happens is that when a company goes public, as Facebook did during Q2, the company tells the banks underwriting the IPO where to set their “estimates” for the next quarter. This is a privilege the company going public gets for selecting those banks. It’s customer service!
To be fair, all companies do this, not just Facebook. It’s a process fully approved by the SEC.
Anyway, Facebook has very little incentive to give those analysts “estimates” that are anything but extremely low. It wants to be able to come out during after its first quarter as a public company and post a “beat” – an “upside surprise.”
Well, now you know better.
If Facebook only “beats its estimates” by a little, you’ll know that the company’s business has deteriorated since the IPO.
Here are some of the laughable estimates from Wall Street:
Goldman: “We are modelling ad revenue of $934mn (+7% qoq and + 20% yoy) versus the adjusted consensus number of $921mn (+6% qoq and +19% yoy).”
Merrill/BofA: “We expect 24% y/y growth in 2Q revenue, down from 45% y/y, driven by 18% y/y growth for Advertising revenue and 61% y/y Payment growth. “
Oppenheimer: Expects 19% ad growth.
JP Morgan: “Our 15% Y/Y advertising growth in 2Q is based on 17% Y/Y growth in impressions and 2% decline in eCPM.”
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