Facebook earnings: Will advertisers stick with the social network?

Published: Oct 28, 2018 12:35 p.m. ET

Investors and analysts are looking for signs that the social network has successfully combated some of the questions around whether it can, in fact, continue to grow its member base at the same rate it has historically. And, if it’s unable to do so — or even if Facebook can — whether the tech giant can sustain revenue growth as well.

North American growth may continue to be a problem for the company, potentially because of the Cambridge Analytica scandal fallout and other subsequent negative news stories, Stifel analyst Scott Devitt wrote in a note headlined “Facebook: digital tobacco” to clients last week — a statement echoed by Marc Benioff, co-chief executive of Salesforce.com Inc. CRM, -3.75% Devitt wrote that he is looking for relative stability in the U.S. and Canada, and expects to see daily users either grow or decline by about one million.

A torrent of negative news stories about Facebook’s effects on the world, as well as data and privacy concerns have had an impact on some advertisers, said Susquehanna Financial Group analyst Shyam Patil. Patril wrote that his team’s analysis suggested there were “pockets of softness in brand advertising” because big ad buyers were less willing to increase budgets.

Advertisers that rely on Facebook for direct response advertising reported little change in their approach to buying in the wake of the public relations issues the company has been dealing with. Patil has a buy on the company with a $250 price target.

Earnings: On average, analysts polled by FactSet model third-quarter earnings of $1.46 a share, down from $1.59 in the year-ago quarter. Contributors to Estimize, which crowdsources estimates from analysts, fund managers and academics, predict earnings of $1.58 a share.

Revenue: Sell-side analysts on average project third-quarter Facebook sales of $13.77 billion, up from $10.33 billion in the year-earler period. Estimize contributors expect sales of $13.95 billion.

The vast majority of Facebook revenue is from mobile advertising, which analyst models suggest will account for $12.51 billion, and desktop ads will make up $1.18 billion. Analysts expect sales of $194 million for payments and other fees, a category that includes the company’s Oculus virtual-reality hardware sales.

On average, analysts expected Facebook to earn $6.09 per user during the quarter and grow its monthly active user base to 2.29 billion.

What analysts are saying

Barclays analyst Ross Sandler wrote in a note to clients earlier this month that his team has “heard some grumblings” from ad buyers — especially due to the political issues that Facebook has stepped into — and has caused some “hesitation” around budget decisions. But, advertisers did continue to report that Facebook ads are effective. Sandler has a $180 price target and rates the name a buy.

Yet, the Menlo Park, Calif.-based company’s platform remains massive and essential to most large-scale advertiser budgets, according to Pachter. Pointing out that Facebook has more than two billion monthly users, Instagram topped one billion as of June, Messenger with 1.3 billion and WhatsApp’s 1.5 billion, the company is poised to grow ad revenue in the long run, Pachter wrote.

Facebook’s average revenue per member in the U.S. and Canada is roughly fourfold what it makes from each account in the rest of the world, which Pachter says is reason enough to expect Facebook to squeeze more revenue out of every user overseas. Pachter rates Facebook the equivalent of a buy with a $250 price target and in a Friday note to clients Pachter said Facebook remains undervalued.

Stifel’s Devitt forecasts flat-to-down daily use in Europe, in part because of the EU’s General Data Protection Regulation, which includes privacy opt-ins that continue to weigh on the company’s user counts. If Europe recovers more quickly, it would be a “positive surprise,” he wrote.

Facebook earnings: After a year of scandals, record profit still expected

Jan 28, 2019

At the end of a 2018 filled with scandals and negative headlines, Facebook Inc. is expected to report its most profitable quarter in history.

When Facebook releases results Wednesday after the closing bell, the empire of websites and apps controlled by the company is expected to report nearly $6.4 billion in profit for the final three months of the year, over $1 billion more than it has ever reported in a quarter previously. Calendar fourth-quarter advertising sales are typically the highest of the year, as advertisers attempt to attract holiday shoppers, but Facebook is still expected to beat the holiday quarter last year by more than $2 billion.

Earnings: On average, analysts polled by FactSet estimate fourth-quarter earnings of $2.18 a share, up from $1.44 a year ago, though that profit total was shaved down from changes to the U.S. tax code. Contributors to Estimize predict earnings of $2.19 a share.

Revenue: Sell side analysts on average model fourth-quarter revenue of $16.4 billion, up from $12.97 billion in the year-earlier period. Estimize contributors predict revenue of $16.38 billion.

The bulk of Facebook’s revenue is from mobile ad sales, which analysts on average estimate at $14.94 billion in the fourth quarter, according to FactSet. Desktop ad sales are expected to decline to $1.27 billion from $1.41 billion in the year-earlier quarter. The company’s Oculus virtual reality hardware is included along with revenue from Marketplace in “Payments and Other Fees,” which analysts expect to be $197 million.

On average, analysts expect Facebook to collect an average of $7.11 in revenue for each user. Wall Street expects European daily active user growth to remain flat compared with the third quarter; analysts expect modest daily member growth U.S. and Canada to 185.3 million, up from 185 million in the third quarter.

What to watch for

While much of Facebook’s growth through its history has been due to its core Facebook app, Instagram has become a massive source of revenue for the social network, according to projections from eMarketer. By the end of 2019, Instagram will haul in $14.38 billion in world-wide sales, which amounts to 4.4% of the global ad market and 6.2% of the global mobile market.

Facebook currently does not tell investors how much money Instagram, Messenger or WhatsApp make. According to the New York Times, the company plans to merge the underlying technical infrastructure of its various properties by early 2020.

Facebook Inc's chief product officer and one of its earliest employees, Chris Cox, said on Thursday he is leaving the company, just days after Chief Executive Officer Mark Zuckerberg revealed a plan to pivot the world's biggest social network to an encryption-focused messaging company.

Cox, one of Zuckerberg's closest lieutenants and head of Facebook, Instagram and WhatsApp products, said in a blog he made the announcement "with great sadness" and was leaving after 13 years with the company.

"As Mark has outlined, we are turning a new page in our product direction, focused on an encrypted, interoperable, messaging network...This will be a big project and we will need leaders who are excited to see the new direction through," Cox said in a Facebook post.