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Facebook (FB) Earnings After Bell Wednesday: Can Lofty Expectations Be Met?

Daniel Laboe

The world’s largest social media site is gearing up for Q3 earnings. Facebook FB is releasing its Q3 earnings report Wednesday, October 30th, after the bell and growth expectations are substantial.

FB is typically a big mover on earnings releases with an average move of 7.4% over the past 8 quarterly reports (5 up, 3 down). Zacks Consensus estimates display an EPS of $1.91 on revenues of $17.32 billion, representing year-over-year growth of 8.5% and 26.2%, respectively.

FB has been trading in a state of limbo since its last earnings release marginally slid the share price at the end of July when the firm illustrated a deceleration in user growth. Since the beginning of August, FB has been trading in a $15 range between $175 and $190.

FB is trading on the higher end of this range going into earnings, and investors are hoping the stock can bust back into the $200s.

Twitter TWTR released its 3rd quarter results last Wednesday after the bell missing both top and bottom-line estimates, which has plummeted the stock over 23% since. Snapchat SNAP beat both metrics and is up almost 5% since its earnings last week. As it stands, social media stocks have had mixed results.

The Business

2.1 billion people around the world use one of Facebook’s family of services daily, while 2.7 billion utilize one of these at least once a month, whether it be Instagram, WhatsApp, Messenger, or Facebook.

Facebook’s daily active user (DAU) and monthly active user (MAU) expansion have been slowing down in recent quarters with only 8% year-over-year growth in Q2 compared to 11% in Q2 last year and the 14% in 2017.

This slowdown in user growth was inevitable, with roughly 63% of the internet accessing world using at least one of Facebook’s services at a minimum of once a month. User growth will soon be a product of world population growth.

Facebook has been able to partially offset this slowing user growth trend with the appreciation of average revenue per user (ARPU), although policy headwinds could negatively impact this growth with regulatory changes focused on targeted advertising.

The FTC slapped Facebook with a $5 billion civil penalty earlier this year (impacting Q1 and Q2 results), the largest fine in the history of the agency. The fine was related to negligence with handling user data as well as ‘deceptive’ communication to consumers pertaining to user data utilization. Along with the massive fine, the FTC required Facebook to implement new privacy processes to ensure that this misstep doesn’t occur again.

Regulatory overhang remains a concern for Facebook moving forward. The company’s growth is decelerating, and the reliance on ARPU for topline appreciation increases. If regulatory bodies inhibit Facebook’s ability to produce targeted advertisements, the company’s growth could be significantly hampered.

Take Away

Facebook is a social media staple that is not going to fall through the cracks anytime soon. FB controls the world’s largest social media platform, the two most used messaging apps on the globe, and the fastest growing social media site.

This company undoubtedly has a bright future, with over 20% topline growth expected for the next 3 years. The question now is whether or not FB can meet its lofty forecasts. Earnings after the bell on Wednesday will provide further color on its ability to meet ambitious expectations.

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