Facebook Inc.is scheduled to announce
third-quarter earnings after the market closes on Tuesday. Here’s what you need
to know:
EARNINGS FORECAST: Facebook is expected to
report a quarterly profit of $1.46 per share, down about 8.2% from the prior
year’s earnings per share of $1.59, according to data compiled by FactSet. Many
analysts expect Facebook’s costs to jump, as it spends big on video content,
artificial-intelligence technology and platform security.
REVENUE FORECAST: Analysts predict Facebook
will report revenue of $13.77 billion, up about one-third from the prior year.
WHAT TO WATCH:
GROWTH PROJECTIONS: In late July, Facebook
suffered the biggest-ever one-day loss in market value for a U.S.-listed
company after warning about slowing growth for the rest of the year. Facebook
shares have yet to recover, with the stock price down roughly 35% from July 25
as of Monday evening. The company’s falling share price could have an outsize
effect on internal morale, especially when coupled with near-relentless
external criticism of Facebook’s products, current and former employees have
said. Investors will be watching closely to see if Facebook’s outlook shifts
significantly.
AD DEMAND FOR STORIES: One key factor shaping
Facebook’s financial future is advertising demand for its Stories product,
which allows users to post photo and video montages that disappear after 24
hours across its app. Facebook executives expect more people to use Stories
than browse the Facebook news feed next year. But according to Credit Suisse,
ads in Facebook Stories may cost about half of those in the main news feed. “A
few (advertising agencies) have started to question the sustainability of
rising prices on the core platform as Stories has yet to be adopted by a wide
swath of advertisers,” MoffettNathanson‘s founding partner Michael Nathanson
wrote in a note last week.
THE COST OF SAFETY: Over the last year,
Facebook executives have said they are willing to sacrifice profits to minimize
the downsides of its services. So far, users haven’t abandoned the Facebook
platform en masse—and likely won’t—but the company is still facing a growing
list of serious problems that it is promising to manage. That means rising
costs. “We’re not doubting they can’t be fixed, but the fact that problems keep
emerging reinforces our view that the company is not as in control of its
business as it needs to be,” said Pivotal Research analyst Brian Wieser. “As
problems are fixed, costs will rise, possibly faster than the company has
anticipated.”
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