Facebook Q2 Earnings Preview: Is It Instagram’s Time to Shine?

Popular photo sharing app has the attention of Wall Street and advertisers

Last Updated: July 25, 2018 @ 11:02 AM

Let’s just get this out of the way: Facebook reporting better-than-expected earnings is becoming as much of a guarantee as death, taxes, and LeBron James making the NBA Finals.

Just look at the social network’s last 10 quarters. Facebook has beat on revenue expectations each time. It’s hit or exceeded earnings estimates nine times out of 10 — and the one time it missed, during the fourth quarter of 2017, was because of a tax adjustment.

It’s become such a formality because Facebook, alongside Alphabet, Google’s parent company, continues to dominate the digital ad world. The two Silicon Valley stalwarts rake in 56.8 percent of all online ads in the U.S., per eMarketer.

Wall Street analysts are expecting that stranglehold to be reinforced on Wednesday, when Facebook reports its second quarter earnings. Analysts project Facebook to report $13.36 billion in revenue and earnings of $1.72 per share on average, according to Yahoo Finance.

Facebook’s performance has, so far, appeared teflon to controversy. The company shrugged off the Cambridge Analytica data scandal — where up to 87 million users had their information unknowingly accessed by the political data firm — to report $13 billion in sales, its best quarterly revenue ever, back in April. As CEO Mark Zuckerberg has been on a media tour in recent months, working to get Facebook back in the public’s good graces, the company’s stock has jumped to an all-time high of $214 per share. Still, the full impact the leak had on the social network’s coffers and user base may not be apparent until it reports on Wednesday.

Facebook’s stock price has recovered from the Cambridge Analytica data leak to hit an all-time high heading into earnings (via Google)

Luckily for Facebook, it has an ace in the hole: Instagram. The uber-popular photo sharing app has been on a tear of late. Instagram just passed 1 billion monthly active users in June — a 25 percent increase since last fall. More than 500 million people use the app on a daily basis.

That growth is all the more impressive in comparison to Facebook, as it edges towards global saturation. The social network increased its monthly users by 3.14 percent last quarter, hitting 2.2 billion MAUs. It’s impressive growth, considering the sheer size of Facebook, but it falls short of Instagram.

Facebook has been reticent to breakout Instagram’s performance from its earnings in the past. (And why would it, when Facebook’s revenue is increasing 49 percent year-over-year.) That might change, though, as businesses jump on the Instagram bandwagon.

“Multiple partners cited the strength in Instagram user growth as a key driver for incremental inventory,” Goldman Sachs wrote in a note to clients shared with TheWrap. Merkle, the tech-focused marketing agency, saw ad spending increase 177 percent in the last year on Instagram, noted Goldman Sachs.

Something else in Instagram’s favor — it’s not Facebook.

The social network has seen its popularity wane among teenagers, as Gen Zers flock instead to Instagram and its rival, Snapchat. Facebook’s $1 billion buyout of Instagram in 2012 was roundly mocked at the time — “A billion dollars of money? For a thing that kind of ruins your pictures?” commented an incredulous Jon Stewart — but has since become its safeguard against the mothership ever turning into Myspace 2.0. The deal has clearly become one of the best in tech history, with Instagram now valued at $100 billion, according to Bloomberg. Instagram’s popularity, coupled with the rest of the apps in Facebook’s arsenal, gives advertisers continued reason to stick with the social network.

“Ad budgets shifted into Facebook have consistently exhibited strong growth and stickiness across a diverse base of customers – advertisers do what works, and Facebook works,” Piper Jaffray analyst Mike Olson wrote in a note to clients shared with TheWrap. “We expect this underlying strength to continue and manifest across Instagram, Messenger, and WhatsApp.”

Make no mistake, Facebook is still a force. It’s one of the five biggest companies in the world. But at some point, it’s going to reach a place where it not only wants but needs to highlight Instagram’s success. If its Q2 revenue misses the mark or user growth is lackluster, that point may come on Wednesday.