Facebook Inc. (FB), the world's leading social network, has continued to post explosive revenue growth in recent quarters even as billions of dollars in government fines over privacy breaches have hammered earnings this year. That hasn't bothered investors, who have boosted the company's shares by about 50% in 2019, triple the pace of the market.
What Facebook Investors Are Watching For
Many investors will watch to see if the company can keep its growth - and stock price - surging in the face of an array of challenges when it reports quarterly earnings in just over two weeks. Investors will want to know if there's any sign that Facebook's core revenue generator - its digital advertising business - is slowing with the economy, if there's any sign of weakening profit margins, and if government investigations in the U.S. and Europe will result in more regulations or costly fines. On the positive side, investors will want to hear more about Facebook's new cryptocurrency, Libra, which experts say could make Facebook a powerful force in the financial world even as it faces intense opposition. Facebook has yet to announce an exact reporting date but the estimated date is July 24, according to Yahoo Finance.
Analysts' 2Q Estimates
Despite Facebook's stock performance, analysts indicate that Q2 earnings growth will be muted. According to data from Yahoo Finance, the consensus estimate for Q2 earnings per share (EPS) is $1.87, a less than robust 7.5% increase from year-ago EPS at $1.74. On average, analysts expect sales to grow 24.8% to $16.5 billion, compared to revenue during the same quarter last year at $13.23 billion.
That performance appears to generally mirror Q1, where Facebook posted strong revenue growth but poor earnings. Facebook's Q1 earnings results fell sharply short of analysts' forecasts due to a one-time charge. The firm exceeded revenue expectations and posted strong daily active user growth, leading shares to jump on results, despite announcing that it would take a one-time charge amounting to billions of dollars due to an ongoing Federal Trade Commission inquiry.
Facebook's Revenue Outlook
At the center of attention will be the revenue growth rate in Facebook's broader array of businesses. For starters, its digital ad business faces new pressures from Amazon.com Inc. (AMZN), which has jumped into the digital ad space and quickly built market share. Amazon threatens both Facebook and the other dominant player in the digital ad duopoly, Alphabet Inc.'s Google (GOOGL).
Fortunately, Facebook’s is seeing accelerating growth in platforms like Instagram and WhatsApp, the latter which reigns over Apple Inc.’s (AAPL) iMessage in many developing countries. These businesses reflect Facebook’s larger transition away from News Feed ads as it builds its newer products. In Q1, Facebook said its “Stories” features on Instagram, Facebook, Messenger and WhatsApp all now have 500 million daily active users, and that 3 million advertisers are using the platforms.
Despite enthusiasm over these fast-growth properties, analysts certainly will want to hear details regarding how management plans to fend off reported plans by the U.S. to take antirust action against the company. While such actions aren't imminent, CEO Mark Zuckerberg is already girding the company. He has continued to indicate that the company is open to more government oversight, writing in a March memo that the future of the company will be “private, encrypted services,” and that a shift to privacy will be a central focus. That may be necessary to put profits back on the fast track.