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Facebook second-quarter earnings: What to expect

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·Chief Tech Correspondent
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Facebook is set to report second-quarter earnings on Source: REUTERS/Philippe Wojazer/File Photo
Facebook is set to report second-quarter earnings on Source: REUTERS/Philippe Wojazer/File Photo

Wall Street analysts are expecting another solid quarter for Facebook (FB), which reports second-quarter earnings on Wednesday afternoon — its first full quarter following a massive data-harvesting scandal.

Analysts are generally expecting earnings-per-share of $1.71 on revenues of $13.34 billion, up from earnings-per-share of $1.32 on revenues of $9.32 billion during the same period in 2017. They’re also expecting 2.25 billion monthly active users for the quarter — up 2% from the first quarter.

“FB has reported revenue above consensus in each of the last 12 quarters, beating expectations by an average of 4% ($250-$300mn),” Goldman Sachs analyst Heather Bellini pointed out in a report published Monday. She sees potential for similar outperformance this quarter.

Weathering a scandal

Those estimates come despite one of Facebook’s biggest scandals to date. In mid-March, The New York Times reported that Cambridge Analytica, a voter-profiling company, had effectively harvested the data of up to 87 million Facebook users.

From a corporate standpoint, at least, the company weathered a rocky second quarter, which included U.S. and European politicians grilling CEO Mark Zuckerberg and an apology tour, of sorts, for the company: a series of media interviews with Zuckerberg and COO Sheryl Sandberg, as well as an ad campaign that ran in movie theaters, TV and on Facebook. Last week, Zuckerberg riled up the public again when discussing controversial misinformation on the social network. In a Recode interview, Facebook’s chief executive said that some Holocaust deniers who posted to the social network aren’t “intentionally getting it wrong.”

While Facebook is now investing heavily in safety and security, those controversies haven’t permanently hurt the company’s financial performance. Case in point: Facebook stock is up over 17% so far this year, having recovered from the pummeling it took in March and April after the Cambridge Analytica scandal.

Michael Olson, a senior analyst at Piper Jaffray, still sees significant growth potential for Facebook advertising, which continues to improve as the social network rolls out more back-end analytics tools and improvements for advertisers.

“Ad budgets shifted into Facebook have consistently exhibited strong growth and stickiness across a diverse base of customers — advertisers do what works, and Facebook works,” Olson wrote in a report published last Friday. “We expect this underlying strength to continue and manifest across Instagram, Messenger, and WhatsApp, which will benefit from advertisers being able to allocate budgets across them from a single interface.”

Instagram continues to be a bright spot

Expect investors and analysts to focus on several changes to Facebook’s platform and whether they have had any effect on user growth. Those developments include changes to the News Feed made in January to promote more local news, friends’ content and “higher-quality news sources;” the announcement in March that Facebook is slowly shutting down the ad-targeting tool Partner Categories; and the introduction of Instagram TV this June.

Instagram, with its 1 billion monthly users, continues to be a bright spot for Facebook. According to marketing agency Merkle, ad impressions on Instagram more than tripled year-over-year during the second quarter, with ad spending up 177% year-over-year among the agency’s North America clients.

As such, look for Facebook to highlight Instagram during its second-quarter earnings and likely throughout this year.

JP Mangalindan is the Chief Tech Correspondent for Yahoo Finance covering the intersection of tech and business. Email story tips and musings to jpm@oath.com. Follow him on Twitter or Facebook.

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