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Facebook Q4 Earnings Preview: User Stability, Ad Growth Would Mark Strong Quarter

META | January 29, 2019

When Facebook, Inc. (NASDAQ: FB) reports fourth-quarter earnings Wednesday, the Street expects big numbers.

As of yet, consensus forecasts:

Quarterly revenue of $16.4 billion;
Quarterly earnings per share of $2.19;
Annual revenue of $55.35 billion; and
Annual EPS of $7.38.

If Facebook pulls off the estimates, it would demonstrate significant strength compared to prior terms. The fourth quarter of 2017 saw EPS of just $1.44, notably short of the $1.95 estimate, while the third quarter of 2018 closed with $1.76 to demolish a $1.47 forecast.

Analyst Commentary

KeyBanc Capital Markets suspects user stability and ad growth offset forex headwinds in the last quarter.

“We believe usage trends across Facebook's platforms have remained relatively stable and expect strong growth at both core Facebook and Instagram to drive nearly 28 percent year-over-year constant currency ad growth in 4Q,” analysts Andy Hargreaves and Tyler Parker wrote in a note.

Bank of America Merrill Lynch expects only a modest quarterly beat.

Guidance Expectations

Looking forward, Bank of America forecasts first-quarter forex pressure and decelerated revenue growth, but annual guidance should be strong, with any opex and capex growth in 2019 laying groundwork for 2020 EPS growth of 20 percent.

“We think 2019 is likely to end better for FB than it started,” analysts Justin Post and Benjamin Sherlund wrote. “Our core view is that stories and video usage could stabilize/improve FB engagement, while greater monetization of stories, messaging and video, plus easier comps could stabilize revenue growth in the back half of 2019.”

KeyBanc expects 2019 to be the year of Instagram and dwindling headline risk.

“Trends in Instagram usage appear relatively unaffected by the broader concerns around Facebook, and we estimate Instagram will drive over 50 percent of incremental revenue in 2019,” Hargreaves and Parker wrote. “This implies the remainder of the business, which includes Facebook, Watch, Messenger and WhatsApp, can grow just 11 percent in 2019 and still meet our total company 2019 revenue growth estimate of 20 percent.”

They consider Instagram underappreciated given its prospects as the primary growth driver, and Facebook’s core platform should retain its leadership in social media and ad platforms.

Stock Performance

Facebook dipped 22 percent over the last 12 months and dropped 19 percent during the last quarter. However, the last month has seen an 8.7-percent rise in anticipation of earnings.

Analysts over the last three months have been largely bullish on the stock, with 33 Buy ratings dwarfing five Holds and two Sells.

Shares traded at $14.31 at time of publication.

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