Facebook (FB) it sets to report third quarter fiscal 2018 earnings results after the closing bell Wednesday.
The shares have been rocked, down more than 35% since the company announced Q2 results in July, which spooked investors not only with slower-than-expected user growth, but also a miss on revenue. Despite the revenue and downbeat guidance, Wall Street analysts remain broadly positive about the underlying health of the company, given that some 10% of ad spending in the U.S. this year is expected to go to Facebook.
While there continues to be headline risk associated with user privacy and increased risks of U.S. government regulations, Facebook stock, which trades near 52-week lows, remains appealing. On Tuesday Wall Street will want some confirmation that this recent share price correction, driven by tech selloff, is an overreaction. As such, there are high expectations for this quarter. Specifically, investors will be looking for results of Facebook’s recent changes to its News Feed, which still accounts for the lion's share of its digital advertising engine, serving some 2 billion users worldwide.
For the three months that ended September, the Menlo Park, Calif.-based company is expected to earn $1.47 per share on revenue of $13.78 billion. This compares to the year-ago quarter when earnings came to $1.59 per share on revenue of $10.33 billion. For the full year, ending in December, earnings are projected to rise 33% year over year to $7.17 per share, while full-year revenue of $55.56 billion would rise 36.7% year over year.
On the heels of its second quarter earnings results the stock plunged more than 24%. The 2-cent beat on the bottom line was not enough as second quarter revenue came in at $13.23 billion, compared to expectations for $13.36 billion. Meanwhile, global daily active users were 1.47 billion, just shy of the 1.49 billion the Street was looking for. Investors ignored the fact that Average revenue per user was two cents better than estimates, coming in at $5.97.
The company didn’t try to hide its plans or the challenges that lie ahead. The management told analysts on its conference calls that it expects revenue growth in the second half of the year to be slower than it was accustomed to. Estimates suggests the rate of decline could be as high single digit percentages.
On Wednesday analyst will want signals as to whether the Q2 numbers were a one-off event or a sign of a long-term trend ahead. Analysts will also want to see some progress with the company’s attempts to monetize Messenger and WhatsApp, which boasts 1.3 billion-plus and 1.5 billion-plus monthly active users, respectively. Native ads and in-app transactions have been among the monetization strategies mentioned. Any progress on those fronts would be a positive for the stock.