Facebook (FB) 1st Quarter Earnings: What to Expect

Facebook earnings ()

Facebook earnings ()

Social media giant Facebook (FB) is set to report first quarter fiscal 2018 earnings results after the closing bell Wednesday.

Owing to negative headlines over user privacy, caused by the Cambridge Analytica data fiasco, Facebook stock has suffered for most of 2018, down 9.5% year to date, while falling almost 20% from its 2018 high of $195 reached in January. The likelihood of increased U.S. government regulations has caused considerable investor angst regarding Facebook’s ad-based business model.

Investors have sold the stock fearing that many Facebook users — sparked by the “Delete Facebook” campaign — would driver users towards competing platforms such as Twitter (TWTR) or Snapchat (SNAP). Nevertheless, 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.

Likewise, in the context of the company’s total user base of more than 2 billion monthly active users, the reported 50 million accounts that were exposed to Cambridge Analytica, which amounts to about 2% of Facebook users, isn’t that many. CEO Mark Zuckerberg has said on multiple occasions that the company has seen no meaningful impact from the “Delete Facebook” campaign, but acknowledged that it’s “a big issue that I think we have a responsibility to rectify."

It is likely for this reason analysts have maintained a consensus Buy rating on FB stock, predicting the shares to rise nearly 30% to around $215. On Wednesday Wall Street will want some confirmation that this level of confidence, driven by a steady rise in revenue and earnings estimates, is merited.

For the three months that ended March, the Menlo Park, Calif.-based company is expected to earn $1.36 per share on revenue of $11.41 billion, translating to year-over-year growth of 30.7% and 42%, respectively. For the full year, ending in December, earnings are projected to rise 34% year over year to $7.22 per share, while full-year revenue of $55.24 billion would rise 35.6% year over year.

Obviously, the strength of this quarter’s daily active user (DAU) metric will be closely watched. In Q4 the company suffered its first DAU sequential decline in U.S. & Canada, which sparked concerns about growth in North America. Investors should brace for further weakness this quarter and possibly in Q2. To that end, the progress of the company’s recent investments in security and other safety measures will also be a hot topic.

To the extent Facebook’s online and mobile advertising revenues, where, along with Google (GOOG , GOOGL) it dominates the industry, can show strength, it can offset any weakness in DAUs, especially if its average revenue per user (ARPU) exceeds estimates. Wall Street expects ARPU of $5.35. There will also be a focus on the company’s new products and the many initiatives Facebook has undertaken that are aimed at boosting user engagement.

How the company performs in these areas, combined with confident outlook may assuage investor fears about the company’s long-term growth potential under stricter government regulations. From a risk-versus-reward perspective, the optimal time to sell FB has come and gone. With the stock priced at a forward P/E of 21, compared with its historical average of 30, this makes FB stock a solid bet ahead of Wednesday’s results.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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