Facebook Inc (NASDAQ: FB ) reports its fourth quarter results on Wednesday, after the market closes. It's going to be a busy week for earnings. And of course, the social media giant will be one of the companies that will get quite a bit of attention.
Already this year, Wall Street has remained bullish on FB stock. The gain has come to roughly 6%. But this performance has lagged other top tech operators like Netflix, Inc. (NASDAQ: NFLX ), Alphabet Inc (NASDAQ: GOOGL ) and Amazon.com, Inc. (NASDAQ: AMZN ).
Furthermore, CEO Mark Zuckerberg has recently indicated some major changes, which could hamper growth.
Forecast For FB Stock
But before we get into that, let's first take a look at the forecast for the quarter. Earnings are expected to hit $1.95 on FB stock and revenues to reach $12.54 billion, up from $8.8 billion on a year-over-year basis. This implies a 43% growth rate on the top-line.
Here are some notable events in the quarter:
- WhatsApp has launched its business app in select markets. Facebook's aim is to monetize the platform with fees from larger enterprises that want sophisticated communications systems.
- American Express Company (NYSE: AXP ) CEO has agreed to serve on the FB board.
- FB's Virtual Reality business, Oculus, announced partnerships with Xiaomi and QUALCOMM, Inc. (NASDAQ: QCOM ).
- FB launched Photo Review, which is a facial recognition service that tags the photos that others post of you.
Now it's true that Facebook has a rock-solid track record when it comes to beating the numbers. And the upcoming Q4 report will likely be no different.
Beyond The Numbers
But for FB stock, numbers may not be the main concern. Investors want to know more about Zuckerberg's proposed changes to the News Feed. He wants there to be more content from friends and family - not traditional news sources and businesses. The goal is to increase community and decrease fake news.
The impact of all this is hard to gauge. But in a blog post, Zuckerberg did state :
"Now, I want to be clear: by making these changes, I expect the time people spend on Facebook and some measures of engagement will go down."
Yes, for FB stock, this is kind of scary. Might there be fewer opportunities to monetize? Or even worse, could FB users go to alternative services?
Well, one thing is sure: The News Feed is a critical revenue-generating engine that drives FB stock. In other words, decreasing the spread of false information is important, but Zuckerberg better be prepared to answer some tough questions from Wall Street analysts.
Bottom Line On FB Stock
Over the years, Zuckerberg has faced many challenges. And he's always been able to effectively deal with them. The result is that the 33-year-old has built a social media empire with 2.07 billion users.
So with the changes to the News Feed, I trust that Zuckerberg has a well-thought out plan. In his blog post, for instance, he noted that his company has been "carefully" looking at academic research and engaging in its own research with leading experts at universities. The main conclusion:
"The research shows that when we use social media to connect with people we care about, it can be good for our well-being. We can feel more connected and less lonely, and that correlates with long term measures of happiness and health. On the other hand, passively reading articles or watching videos - even if they're entertaining or informative - may not be as good."
In the meantime, it is also encouraging that FB has a assortment of standout assets - like WhatsApp, Messenger and Instagram - that are in the early stages of monetization, which should help with the transition.
But in the short-run, there could be some volatility, as is natural with any big changes. In other words, there could be some risk to FB stock ahead of earnings.
Tom Taulli is the author of High-Profit IPO Strategies , All About Commodities and All About Short Selling . Follow him on Twitter at @ttaulli . As of this writing, he did not hold a position in any of the aforementioned securities.
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