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Facebook (FB) to Report Q4 Earnings: What's in the Cards?

Zacks Equity Research

Facebook FB is set to report fourth-quarter 2019 results on Jan 29.

The company expects the fourth-quarter revenue growth rate to decline a mid-to-high-single digit percentage on a sequential basis, primarily due to ad targeting related headwinds.

The Zacks Consensus Estimate for revenues is pegged at $20.87 billion, indicating an increase of 23.4% from the year-ago quarter’s reported figure.

Moreover, the consensus mark for fourth-quarter earnings is pegged at $2.51 per share, up a penny in the past 30 days, indicating 5.5% growth from the figure reported in the year-ago quarter.

Notably, the company’s earnings have missed the Zacks Consensus Estimate in two of the trailing four quarters, the average negative surprise being 20.1%.
 

Facebook, Inc. Price and EPS Surprise

 

Let’s see how things are shaping up for the upcoming announcement.

Factors to Consider

Facebook’s fourth-quarter top line is expected to reflect the growing popularity of Stories. Notably, Instagram and WhatsApp are the top two popular Stories products globally.

The company’s new products like automated ads for small businesses, dynamic ads on Instagram Stories and branded content ads on Instagram are expected to have helped advertisers reach their targeted audience.

Moreover, Facebook’s initiatives to improve privacy, transparency and authenticity of ads and remove fake accounts from the platform are expected to have boosted user trust and engagement. These initiatives are likely to have contributed to Facebook’s advertising revenues in the to-be-reported quarter.

However, it is noteworthy that Alphabet’s GOOGL Google and YouTube, and Twitter TWTR are constantly trying to dominate the digital ad space. Amazon AMZN is also aggressively focusing on improving its ad business. Facebook’s top line is expected to reflect the negative impact of intensifying competition as well as ad targeting-related headwinds in the fourth quarter.

The Zacks Consensus Estimate for fourth-quarter advertising revenues is pegged at $20.56 billion, indicating 23.6% growth from the figure reported in the year-ago quarter.

Expansion of Gaming Footprint

Facebook expanded its gaming footprint in the fourth quarter. The company launched two Pokemon games, titled Pokémon Tower Battle and Pokémon Medallion Battle, in the quarter on Facebook Gaming, which reportedly has more than 700 million monthly users.

Both games are free-to-play on PC using Facebook’s social platform and on mobile through Facebook Messenger.

Moreover, in December, the company acquired Spanish cloud gaming company, PlayGiga, in an effort to get a foothold in the market.

Facebook also bought Beat Games, developer of popular VR rhythm game, Beat Saber.

Facebook’s gaming efforts are intended to attract the younger demography to the platform. The company’s attempt to capitalize on the growing demand for video games is expected to draw/retain users to the platform, which is expected to have expanded the user base.

In the last reported quarter, Monthly Active Users (MAUs) were 2.449 billion, up 7.8% year over year. Daily Active Users (DAUs) were 1.623 billion, on average, increasing 8.6% year over year and representing 66% of MAUs.

The Zacks Consensus Estimate for fourth-quarter MAUs worldwide is pegged at 2.490 billion.

Key Q4 Developments

Moreover, during the quarter, the company introduced its payment service, Facebook Pay, which allows users to make payments and send money to others.

Zacks Rank

Facebook currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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