Facebook Inc. (FB) Q3 Earnings Preview: Mobile Ads, User Growth Are Key To Success

Facebook Inc.’s success hinges on mobile ads and user growth as it prepares to report third-quarter earnings on Tuesday. The social network reported a 14 percent jump in the number of monthly active users, or MAUs, last quarter, to 1.32 billion users worldwide.

In part, Facebook itself thinks it may be destined to disappoint. During a call to discuss last quarter’s earnings, the company said that investors should not expect the same kind of growth during the second half of the year. In the third quarter of 2013, Facebook grew its user base by 18 percent, making user growth a potential obstacle for the service.

The growth of Facebook’s mobile-advertising revenue, which rivals that of online ad giant Google Inc., is a success story that investors will hope continues. When it announced earnings in July, Facebook increased revenues 61 percent over the same period in 2013. That was largely due to a jump in mobile-advertising revenues, which consisted of 62 percent of the company’s $2.68 billion in total ad sales, allowing the social network to post profit margins higher than those of Google's.

Wall Street expects Facebook to post earnings of $0.40 a share on revenue of $3.12 billion, according to a survey of analysts by Thomson Reuters Eikon. Facebook’s stock price rose more than 30 percent in the last six months, as of close of business on Monday.

Facebook has rolled out video and Instagram ads on a limited basis over the past few months, but new products like these would have a minor impact on its overall ad sales in the July to September period, according to Pivotal Research’s Brian Wieser. Facebook is estimated to account for 10 percent of all online advertising in the U.S. in 2014, and that number could go up to 12.5 percent by 2015, the analyst predicted in a research note.

Over 170 million shares of Facebook’s outstanding stock might become available later this week, RBC Capital Markets analyst Mark Mahaney told CNBC. He warned that as stock sold during the WhatsApp acquisition would come into play, it could mean a bigger fall in the company's share price should Facebook miss Wall Street expectations.