Facebook Earnings Preview: What to Watch
July 26 2017 - 6:29AM
Dow Jones News
By Deepa Seetharaman
Facebook Inc. is scheduled to announce its second-quarter
earnings after the market closes Wednesday. Here is what you need
to know:
EARNINGS FORECAST: Facebook is expected to report quarterly
earnings per share of $1.12, up from 71 cents a year ago. In May,
Facebook said it would only provide key financial metrics based on
generally accepted accounting principles, following the path of
Alphabet Inc. Previously, Facebook also reported non-GAAP figures,
which excluded stock-based compensation and other expenses.
REVENUE FORECAST: Analysts predict Facebook will report
quarterly revenue of $9.2 billion, up 43% from the prior year's
$6.4 billion.
WHAT TO WATCH:
SHRINKING GROWTH, RISING COSTS: Last year, Facebook warned that
it would stop squeezing more ads in users' news feeds in mid-2017,
at which point ad revenue growth would shrink "meaningfully." At
the same time, Facebook also plans to spend as much as 50% more in
2017 on building new data centers, recruiting new engineers and
content moderators, and buying original content. Investors will
want a sharper picture of what the one-two punch of slowing ad
growth and rising costs will do to Facebook's bottom line.
Macquarie Research expects Facebook's ad revenue growth in 2017
will shrink to 36% while operating expenses will rise 44%.
NEW AREAS OF AD GROWTH: Investors are eager for details about
Facebook's growth plans beyond the news feed. "It increasingly
feels like Facebook is under some pressure to find its next leg of
growth," said MoffettNathanson analyst Michael Nathanson in a
recent note. Facebook has made some moves on that front. This
month, it started showing ads in its Messenger chat app and testing
ads in Marketplace, a Craigslist-like feature in the core Facebook
app. Facebook has also been testing "ad breaks" in the middle of
Facebook videos and ramping up ads in its photo-sharing app
Instagram. But analysts say it remains to be seen if these new ads
can command news-feed level prices.
VIDEO-FIRST: A year ago, Chief Executive Mark Zuckerberg said
Facebook was on its way to becoming "video-first." Nearly all its
product teams are incorporating video across Facebook's features
and apps; Facebook also is on the hunt for TV-quality original
programming for its video tab and has indicated it could spend up
to $3 million an episode in some cases. Analysts want to know how
much Facebook is spending on video right now, its importance to the
company's bottom line and the size of the future opportunity.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com
(END) Dow Jones Newswires
July 26, 2017 06:14 ET (10:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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