(Photo Credit: Wired Photostream)

Facebook is set to report earnings for its 3rd quarter of the year after the closing bell on Tuesday, October 28. After smashing earnings estimates in July Facebook stock popped 6.5% higher and has been rallying since. Shares of the social network have surged 14% over the past 2 weeks coming off a low they experienced in mid October amid market turbulence. Although we haven’t seen spectacular earnings from the few social media companies that have reported thus far, investors’ expectations for Facebook are through the roof.

(Graph above from ChartIQ Visual Earnings)

Last quarter Facebook reported earnings of 42 cents per share while the Estimize consensus was at 36 cents and Wall Street was forecasting 33 cents. After the huge beat last quarter buyside and independent analysts on Estimize have become even more bullish on Facebook’s bottom line, expecting the social media king’s EPS to beat the Street by 5 cents per share.  

As seen above, over the past year Wall Street has sandbagged its estimates 5 quarters in a row.

After Facebook reported second quarter earnings in July the Estimize consensus shot higher and has been climbing steadily since. Wall Street has left its earnings consensus flat while expectations from investors have marched higher in tandem with the stock price.

Just last week the Estimize consensus rose from 44 cents per share to 45. Upward analyst estimate revisions going into an earnings report are often a bullish indicator. In this case the expectations for Facebook have climbed very high and the tech company will need to crush the Street’s consensus just to keep investors satisfied.

 To put Facebook’s growth in context, analysts on Estimize expect the company to grow by 57% and 80% on the top and bottom line respectively. A 57% year over year revenue increase would be down slightly from Facebook’s average over the past year, 64%. An 80% gain in YoY EPS would also be off from Facebook’s past year average of 124%. Although Facebook’s growth is expected to brake, it’s almost unprecedented for a company doing $3 billion a quarter in sales to be expanding at such a rapid pace.

Facebook’s fundamentals are exploding because the company its monetizing a widening user base of unparalleled scale. In Facebook’s previous earnings release the company reported 1.32 billion monthly active users, and 1.07 billion monthly users on mobile. The numbers are huge already, but Zuckerberg and company have a 3 point plan to keep the profits piling up.

1. Unbundle Facebook to offer best in class mobile experiences. In one of the most gutsy calls by a CEO in the past 10 years, Mark Zuckerberg made a decision to dismantle the all encompassing big blue app that Facebook was. Zuckerberg was worried that the Facebook app was clunky on mobile, and trying to do too many things all at once. On mobile the Facebook app wasn’t sleek enough to offer all the different types of functionality that could be experienced on the desktop platform. Zuckerberg was worried that that if he didn’t unbundle his app into many single use case best in class apps, Facebook would become a jack of all trades on mobile and a master of none. So far his plan looks to be paying off brilliantly as Facebook is making a killing on mobile advertisements and continuing to develop new apps.
2. Expand the user base by connecting more people to the internet across the globe. With over 1 billion monthly users on Facebook, the company has done a spectacular job signing up new members. Facebook is pretty much ubiquitous in locations where internet access is available. Now the social network is trying to connect more people across the world to the web, and therefore its own services. When Zuckerberg outlined his goal to connect the world to the internet last summer, only 2.7 billion people, roughly 1/3 population of the planet, had access to the internet.
3. Increase the value of advertisements by improving data tracking. This quarter Facebook relaunched the Atlas advertising platform. Atlas allows Facebook to track user data across multiple devices, vastly improving the company’s ability to target advertisements, making them more valuable to marketers. It’s widely believed that Atlas will help Facebook compete with Google, which is the master of data tracking and serving targeted advertisements.

It’s easy to see why investors are so bullish on Facebook. Its sheer size gives it brute strength. On top of the power of its massive user base, Facebook is thinking forward, making strategic decisions to set itself up for the future.

Facebook is already a massive company doing over $10 billion a year in sales, but analysts are expecting its fundamentals to keep skyrocketing higher. The only point of concern might be that Facebook has performed so well over the past year that expectations have gotten ahead of themselves. This quarter we’ve already seen some shakiness in display advertising and costs per click. On Tuesday after the close we’ll see if Facebook can match or beat the Estimize consensus and further prove that not all social media companies are created equally.