Social media giant Facebook (FB) is set to report first quarter fiscal 2019 earnings results after the closing bell Wednesday. The main question will be whether or not the company’s efforts to regain the enthusiasm investors once had for the tech juggernaut is working.
If based solely on the stock price, that answer is clear. Facebook has seen its stock rise 36% year to date, crushing the 16% rise in the S&P 500 index. I’m not one to toot my own horn, but Facebook’s rebound was one of my strongest predictions for 2019 for a host of reasons, namely its cheap valuation. And to put it mildly, that call looks pretty good. The key drivers of the stock’s recovery have been the growing adoption of Facebook assets such as Instagram, WhatsApp and Messenger, particularly in Asia-Pacific.
But can it continue? Despite a bevy of controversies surrounding the company, subscriber growth is expected to rise in the first quarter. And it seems advertisers looking for the best returns remain eager to spend with Facebook, applauding the company’s recent investments in videos and music across the company’s platforms. These improvements drove Q4 monthly active users (MAUs) higher by 191 million year over year, while climbing 49 million from Q3 to 2.32 billion.
On Wednesday investors will want to see the extent to which these numbers can continue to grow in the Q1. Also critical to Facebook shares will be the commentary the management provide about its outlook for fiscal 2019 and beyond.
For the three months that ended March, the Menlo Park, Calif.-based company is expected to earn $1.63 per share on revenue of $14.97 billion. This compares to the year-ago quarter when earnings came to $1.69 per share on revenue of $11.97 billion. For the full year, ending in December, earnings are projected to be flat at $7.56 per share, while full-year revenue of $68.97 billion would rise 23.5% year over year.
The projected flat full-year EPS is the result of higher security related spending as the company work to improve the platform. Despite a likely slowdown in the core Facebook app, advertisers are upbeat about the company the aforementioned assets as well as the growing popularity of Stories. Instagram and WhatsApp, which compete with Snap (SNAP), have grown to become the top two popular Stories products in the world. The former has more than 500 DAUs on Stories.
On Wednesday, Wall Street will want some confirmation that Facebook’s growth is far from over. From my vantage point, the underlying health of Facebook remains strong, given that the company still command about 10% of ad spending in the U.S. In 2019 Facebook’s share of the ad market is projected to reach another milestone, account for 11.3% of all US ad spending, according to eMarketer.
While there continues to be headline risk associated with user privacy and increased risks of U.S. government regulations, the bull case for Facebook’s growth remains intact.