Facebook share price: 4 things to look out for in Q4 earnings

Here's what investors should note ahead of Facebook’s Q4 financial report release on 29 January.

US social media company Facebook Inc (NASDAQ: FB) will be announcing its 2019 fourth quarter results on Wednesday, 29 January.

The company is looking to repeat the better-than-expected top-line performance of Q2 and Q3, although it had hinted at a possible slowdown of revenue growth for the holiday quarter.

In terms of stock performance, Facebook’s share price has gained as much as 8.2% so far this year, versus the S&P 500’s overall 3.1% yield.

Going back further, stock value has burgeoned 16.7% since November, on the back of solid third quarter earnings that saw revenue grow 29% year-over-year in Q3 and 28% over the previous quarter.

Facebook is currently trading at US$214.87 per share.

1. Earnings per share (EPS)

This remains a key statistic for the company, seeing that its actual EPS for Q1 and Q2 missed analysts’ estimates by 47.41% and 51.51% respectively.

Earnings recovered in the third quarter to reach US$2.12 per share, above the disappointing US$0.91 that was recorded in the preceding quarter. Q3 earnings also surpassed industry predictions by 11.07%.

For Q4, analysts polled by CNN Business have shared a consensus EPS estimate of US$2.52 on a revenue of US$20.9 billion, while a Zacks Consensus Estimate survey revealed a similar consensus forecast of US$2.51 per share.

If earnings do end up anywhere near these predictions, this would represent a 5.55% increase from the reported earnings for the same period a year prior.

However, Chief Financial Officer Dave Wehner had cautioned against over-optimism toward Q4 earnings. He said during the Q3 earnings call that the company continues ‘to expect a more pronounced deceleration of our revenue growth rate in Q4’ by ‘a mid-to-high single-digit percentage compared to Q3 rate’.

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2. Active users

In Q3, the network managed to achieve 1.62 billion daily active users on average for the main Facebook platform, an increase of 9% year-over-year, as well as 2.45 billion monthly active users, an increase of 8% year-over-year.

Most of the user additions, however, came from lower advertising revenue-generating regions, including India, Indonesia, and the Philippines.

Analysts say close attention should continue to be paid to how many new additions come from North America as well as Europe, which cumulatively make up over 70% of total advertising revenue.

But perhaps the most important number in Q4 when it comes to active users is in the overall ‘Family’ user rate, which measures the total usage of Facebook, Instagram, Messenger, and WhatsApp. According to the company, around 2.2 billion people used at least one of these apps daily in September and around 2.8 billion were active monthly.

Founder and CEO Mark Zuckerberg said he anticipates ‘Family’ metrics to play the primary role in future financial disclosures of the company.

3. Advertising revenue

Advertising revenue is another key metric that analysts will be looking out for, especially with Google, Amazon and other competitors also ramping up their digital advertising reach.

Wehner had said in the same media call that for ‘Q4 and over the longer term, we do continue to expect to face ad targeting-related headwinds and uncertainties’.

Still, US retail bank KeyBanc expects ‘solid ad spending’ across major internet platforms in the fourth quarter, even singling out ‘commerce opportunities’ for Facebook in its forecast.

While Asia-Pacific (APAC) and other emerging territories still bring in less advertising dollars overall, they continue to be the fastest growing regions – so it would still be advisable for investors to mark this indicator down in their books.

In terms of regional ad revenue growth, APAC and ‘Rest of World’ were strongest last quarter, growing 35% and 34%, respectively. APAC got more of a revenue lift from the company’s recent product optimisations – such as the increase in ad load on the main IG feed and the ‘Stories’ format.

Comparatively, North America and Europe grew 27% and 24%, respectively.

Ad revenue grew 28% year-on-year in Q3, with mobile ad revenue contributing approximately 94% of total ad revenue.

4. New products and guidance for 2020

In the third quarter, Facebook also launched a slew of new products, including Facebook Dating in the US, Threads for Instagram, Facebook News, and social virtual reality experience Horizon.

With multiple upcoming initiatives around e-commerce and e-payments launching this year, from Marketplace and Instagram Shopping, to payments in WhatsApp and the Libra cryptocurrency, all eyes are also turned toward their big reveals and the company’s financial projections for them.

The fourth quarter earnings report is also when companies usually provide their guidance for the following financial year, so expectations are for that to happen on 29 January.

So far, the company has indicated a ‘less pronounced’ revenue growth deceleration for FY2020. Do look out for confirmation on this.

Facebook currently has a median share price target of US250 per share and a 'buy' rating from 52 investment brokers on CNN Business.

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