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Facebook (FB) to Report Q2 Earnings: What's in the Cards?

Aniruddha Ganguly

Facebook FB is set to report second-quarter 2019 results on Jul 24.

Notably, the company has missed the Zacks Consensus Estimate in two of the trailing four quarters, the average negative surprise being 4.8%.

In the last reported quarter, monthly active users (MAUs) were 2.375 billion, up 8.2% year over year. Daily Active Users (DAUs) were 1.56 billion on average in March 2019, increasing 7.8% year over year and representing 66% of MAUs.

Throughout 2019, Facebook expects revenues to decline sequentially (on a constant-currency basis), including the second quarter.

The Zacks Consensus Estimate for revenues is pegged at $16.45 billion, indicating an increase of almost 24.3% from the year-ago quarter’s reported figure. However, the estimated growth rate is lower than 30.2% (at constant currency) reported in the previous quarter.

Facebook, Inc. Price and EPS Surprise

Facebook, Inc. Price and EPS Surprise

Facebook, Inc. price-eps-surprise | Facebook, Inc. Quote


Moreover, the consensus mark for second-quarter earnings is pegged at $1.90, unchanged over the past 30 days.

Will Controversies Affect User Growth?

In the second-quarter of 2019, Facebook was involved in a number of controversies.

The demand for the company’s breakup gained some momentum after co-founder Chris Hughes joined the rally of politicians. The topic gained political mileage on growing concerns about the company’s privacy and anti-competitive practices.

However, CEO Mark Zuckerberg believes a breakup of the company wouldn’t solve the privacy problem. Instead, it would restrict Facebook from spending on security and other initiatives.

Notably, the company is being investigated by International Trade Commission (ITC) for violation of antirust principles.

Facebook’s attempts to successfully self-regulate itself were also put under the scanner by Bits of Freedom, a Dutch digital rights organization, which claimed that the company has failed to prevent political meddling.

Furthermore, Facebook received significant backlash post the announcement of blockchain-based cryptocurrency, Libra, on Jun 18. The company is trying to diversify its revenue source, as competition for ad dollars (its primary source of revenue) continues to intensify.

Alphabet’s GOOGL Google, YouTube and Twitter TWTR are constantly trying to dominate the digital ad space. Amazon AMZN is also aggressively focusing on growing its ad business.

Stories & Watch to Drive Ad Momentum

Facebook has been benefiting immensely from the growing popularity of Stories. Notably, Instagram and WhatsApp are the top two popular Stories products in the world. Instagram has more than 500 million DAUs on Stories.

Moreover, Facebook Watch has also gained solid traction, which is evident from an expanding user base. The platform has now more than 720 million monthly and 140 million daily users, who spend at least one minute on Watch.

On average, daily visitors now spend more than 26 minutes on Watch every day, which reflects improved engagement levels. This compares favorably with 20 minutes reported by Facebook during fourth-quarter 2018 earnings conference call on Jan 30.

The company continues to offer different tools on the platform that provide superior experience to users. Additionally, Facebook’s investment in sports video content is expected to provide it a competitive edge against the likes of Twitter and Amazon.

Facebook currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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