Facebook's ride on the mobile ad boom is almost done and Wall Street wants to see its next trick

Facebook

Facebook CEO Mark Zuckerberg

Investors have one big question for Facebook: What's next?

The company has ridden the mobile ad boom over the past few years, and is expected to grow revenue a healthy 54% when it reports Q3 earnings on Wednesday.

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But Facebook execs have warned that the meteoric revenue growth rates are due for a slowdown next year, as the company reaches the limit on how many ads it can squeeze into its users' newsfeeds.

When Facebook execs discuss the quarter's results with analysts on Wednesday, expect many of the questions to focus on its collection of other potential money-makers such as live video, Instagram, Messenger, WhatsApp, and its Oculus virtual reality headsets.

Some of these, such as video ads and Instagram, are already contributing to the top line. Others, like the virtual reality headset Oculus, may continue to suck in investment dollars without a clear payoff in sight.

Shares of Facebook are up roughly 5% over the past three months, outperforming the Nasdaq Composite and the Dow Jones Industrial Average, and reflecting Wall Street's continued faith in the world's largest social network.

But as the company gets closer to reaching the so-called ad load limit in mid 2017, pressure for new revenue engines is sure to grow.

Video show

Facebook is likely to talk up the company's live video strategy and its recent experimentation with mid-roll ads, for example.

Some analysts, like Macquarie's Ben Shachter, think Facebook could boost videos ad revenue even further by creating a standalone app for video, a move that would further heighten the rivalry with Google's YouTube.

Facebook has also been ramping up its monetization strategy for Instagram, and eMarketer now predicts the app will generate $1.86 billion in advertising revenue by the end of 2016.

More recently, Facebook has started letting a small percentage of Instagram users shop for products in the app, although it doesn't currently facilitate purchases.

"Facebook is still going pedal to the metal when it comes to building out its products and services," said eMarketer analyst Debra Aho Williamson. "Its flagship service is still growing in every metric that we track, and its other services, such as Instagram, WhatsApp and Messenger, are also performing well. Oculus has had some challenges gaining traction, but these are very early days for virtual reality in general."

Big bets and extra patience

David Ramos / Getty Images

WhatsApp co-founder Jan Koum.

Some of the other big bets Facebook has made are still far away from producing a payoff.

WhatsApp, which Facebook acquired for $22 billion in 2014, is starting to show early signs of revenue potential through a recent update to its privacy policy that linked WhatsApp and Facebook accounts for the first time. The plan is for businesses to be able to communicate directly with the messaging app's one billion users, although businesses haven't been given the ability to do so yet as they have in Messenger.

Facebook's 2012 acquisition of Oculus for $2 billion has yet to show meaningful returns, but experts believe it could show potential once VR hardware becomes cheaper and enough compelling content is created for people who aren't avid gamers.

"It's still early days for high end VR and there are still a number of barriers to entry such as price and content," Niko Partners analyst Daniel Ahmad told Business Insider. Those barriers need to be removed before the market for high end virtual reality can take off, he said.

Here's what Wall Street is expecting from Facebook in Q3:

• Q3 adjusted earnings per share (EPS): $0.97, up from $0.57 in the year-ago period.
• Q3 revenue: $6.92 billion, up 54% from $4.5 billion in the year-ago period.

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