Growth Likely For Facebook Earnings Despite Tough Regulatory Challenges
Investing.com | Jan 28, 2020 10:02
* Reports 4Q 2019 results on Wednesday, Jan. 29, after the close
* Revenue expectation: $20.88B
* EPS expectation: $2.52
When Facebook (NASDAQ:FB) reports its fourth quarter earnings tomorrow, they are likely to present a similar pattern to the one investors have seen over the course of last year: strong revenue growth along with a moderate impact from political and regulatory probes.
This potential outcome, which contrasts with the social media giant’s struggles in Washington, where it faces a slew of antitrust investigations, has given investors the confidence to bid Facebook stock higher during the past 12 months. Its stock reached a record high of $222.75 on Jan. 22, before the anxiety over the spread of coronavirus hit global stocks. The shares closed down for the fifth consecutive day yesterday at $214.87.
While growth at the main Facebook app has slowed, the company is still adding users rapidly on other properties. A total of 2.8 billion people use at least one Facebook-owned app — Facebook, Instagram, WhatsApp or FB Messenger — every month, making it the world’s largest social network.
Encouraged by this growth, analysts have upbeat forecasts for the company’s revenue and profit for the past quarter. Facebook will likely report $20.88 billion in sales tomorrow, an expansion of about 23% when compared to the same period a year ago, according to analysts’ consensus forecast. Profit per share is seen rising 6% to $2.52 from the year-earlier period.
h2 Core Platform Is Still Growing/h2Facebook’s shares have surged more than 70% since the low of late 2018 — which also reflects the fact that Mark Zuckerberg and the company are successfully shielding the core business from the barrage of negative publicity and regulatory actions.
In Q3, Facebook’s monthly global user base grew by 35 million, including 3 million new users in the lucrative North American market which had been showing some signs of a slowdown in recent years. This growth in user-engagement is coming as Facebook’s new features, such as Stories and its Instagram app, become more popular and bring in higher ad revenues. Research firm EMarketer estimates Instagram will generate more than $15 billion in ad revenue this year, up from $9.1 billion in 2018.
The result of these successes is that Facebook’s operating margin, a measure of profitability, is still the envy of many CEOs. It was back above 40% in the third quarter, up from 27% in the second quarter and 22% in the first.
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That said, the challenges for Facebook on the regulatory front are pretty daunting and have implications for the company’s future. It’s one of the top technology companies facing multiple probes focused on the monopolistic power of its platform, potential for misuse and the company’s data practices.
The U.S. Department of Justice, the Federal Trade Commission and more than 40 state attorneys generals are undertaking separate investigations into antitrust issues. Looking ahead, Facebook will continue to face political pressure and possible volatility in its stock price, especially in 2020 when U.S. voters turn out to select their president for the next term.
Bottom Line
Indeed, there's no guarantee the challenges for the world’s largest social media platform will disappear any time soon. In the latest conference call with analysts in October, Zuckerberg warned that 2020 is going to be a “very tough year,” as the company prepares for the Presidential election in November.
However, despite this tough operating environment and the company’s cautionary tone, the reality is that there is no other platform as powerful or as global as Facebook is. We don’t see that that power diminishing, which is one of the main reasons we continue to like Facebook stock, notwithstanding the ups and downs.
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