Facebook Earnings: What to Watch

By Deepa Seetharaman

Facebook Inc. is scheduled to announce first-quarter earnings after the market closes Wednesday. Here's what you need to know:

EARNINGS FORECAST: Facebook is expected to report a quarterly profit of $1.35 per share, up about 30% from the prior year, according to data compiled by Thomson Reuters.

REVENUE FORECAST: Analysts predict Facebook will report revenue of $11.41 billion, up about 42% from the prior year on the strength of higher ad prices and greater demand for its targeted-advertising tools. According to data marketing firm Merkle, advertisers spent 48% more on Facebook ads in the first quarter compared with the prior year, matching the pace of growth over the last few quarters.

WHAT TO WATCH:

NEW REGULATIONS: Facebook has been in lawmakers' crosshairs since its recent revelations that 87 million users had their data improperly shared with Cambridge Analytica, a political data firm that aided the Trump campaign in 2016. Chief Executive Mark Zuckerberg appeared in front of Congress earlier this month to respond to the controversy, which underscored Facebook's historically lax enforcement of its data rules. Facebook has redoubled efforts to find developers who misused its platform, but most analysts and investors believe additional regulation is inevitable. U.S. regulators are likely to model new laws after strict privacy regulations in Europe called the General Data Protection Regulation, which go into effect next month. "We believe the ultimate outcome of these hearings and media/political uproar is increased regulation," SunTrust analyst Youssef Squali said in an April 13 note.

ADVERTISING GROWTH: So far, the uproar hasn't dented Facebook's lucrative advertising business. Last month, several marketers, including Commerzbank, Germany's second-largest bank, said they would stop spending on Facebook ads, citing the Cambridge Analytica disclosures. Facebook immediately tried to calm their concerns -- and early data suggests that Facebook's efforts worked. "Our checks suggest advertiser response to the negative headlines is relatively modest -- and perhaps limited to larger brands" and possibly small- and medium-sized businesses, according to Baird Equity Research. In addition, Facebook's biggest rival in the online-ad space, Google parent Alphabet Inc., disclosed strong sales growth on Monday in its earnings.

#DELETEFACEBOOK?: Even before the current controversy, Facebook users were spending a little less time on the platform. In February, Facebook said its users spent 5% less time on the platform every day, partly due to changes it introduced to discourage passive consumption of content in the news feed. A slide in user engagement remains one of the looming risks for the company. A Cowen & Co. survey showed a dip in Facebook usage to 53 minutes a day in the first quarter of 2018, down from 58 minutes a year earlier. That decline was especially pronounced in younger users between the ages of 18 and 24, according to the survey. Facebook usage remained well above other social platforms.

Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com

(END) Dow Jones Newswires

April 25, 2018 05:44 ET (09:44 GMT)

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