Facebook Analysts Expect Earnings Will Reinforce Rebound

(Bloomberg) -- As Facebook Inc. prepares to report first-quarter results Wednesday, analysts are confident that the social-media company has moved past negative headlines that dogged the stock throughout the second half of 2018 and that it is positioned to monetize its massive user base in new ways.

The shares have gained more than 45 percent off a December low, closing at their highest level since August on Tuesday. The stock fell ahead of the results on Wednesday, dropping as much as 1.2 percent.

Facebook’s recent gains have come on signs that controversies over user data and privacy haven’t had an appreciable impact on usage, particularly at fast-growing Instagram. New growth areas, like the company’s Stories feature or its recently announced move into e-commerce through Instagram, have also stoked optimism.

Analysts expect the quarter to underline how controversies haven’t led to an exodus of regular users or advertisers. According to estimates compiled by Bloomberg, Wall Street is looking for 1.56 billion daily active users in the quarter and roughly 2.37 billion monthly active users. Both would represent sequential growth off the fourth quarter’s read of 1.52 billion daily users and 2.32 billion monthly users.

Goldman Sachs is looking for “strength across the platform, particularly on Instagram,” and said ahead of the results that the response to “shoppable” ads indicated “a significantly higher level of excitement among advertisers” than “other recent innovations across digital advertising.”

Facebook Analysts Expect Earnings Will Reinforce Rebound

Jefferies wrote that the number of monthly active users had begun to "plateau," and other metrics are also showing some signs of stalling. Adjusted earnings are seen declining 0.6 percent from the year-ago period, according to data compiled by Bloomberg, in part because of higher spending on privacy initiatives. Revenue is seen growing 25 percent, the slowest pace in the company’s history.

Offsetting this is optimism over how quickly Facebook can monetize Stories and e-commerce. Canaccord Genuity wrote that investors may be “under-estimating the speed” that they become major revenue drivers, while analysts at Baird see “significant room for growth as monetization catches up with usage.”

Any insight into this issue on Facebook’s earnings call will be closely scrutinized. It may also be discussed at the company’s F8 developer conference, taking place April 30 and May 1.

Estimates

  • 1Q daily active users 1.56 billion (average of seven estimates.)
  • 1Q monthly active users 2.37 billion (average of eight)
  • 1Q adjusted EPS $1.94 (range $1.84 to $2.04)
  • 1Q revenue $14.97 billion (range $14.7 billion to $15.24 billion)
  • 1Q gross margin 80.9 percent
  • 2Q adjusted EPS $2.12
  • 2Q revenue $16.36 billion

Data

  • Stock has 39 buys, 9 holds, 2 sell ratings
  • Average price target $198 implies upside of 7.6 percent from Tuesday’s close
  • Implied 1-day share move following earnings: 6.7 percent
  • Shares rose after seven of prior 12 earnings announcements
  • Earnings beat or met estimates in 12 of the past 12 quarters

Timing

  • Earnings expected after the market closes; follow our live blog
  • Conference call scheduled to begin at 5 p.m. in New York; see webcast

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