After a challenging 2018 for Facebook (NASDAQ:FB) in which shares tumbled 26%, the social network gets a chance to improve the narrative around its stock later this month. Facebook is scheduled to report its fourth-quarter and full-year results on Jan. 30.
With revenue growth decelerating and costs rising, Facebook's quarterly update later this month will give investors an insightful glimpse into the company's business at an important time. Ahead of Facebook's fourth-quarter update, here's an overview of some of the key items investors will want to watch.
One of the problems that plagued Facebook stock in 2018 was the company's decelerating revenue growth. Facebook kicked off the year with an impressive first-quarter year-over-year revenue growth rate of 49%. But this rate fell to 42% in Q2 and then to 33% in the company's most recent quarter.
Investors should expect a further deceleration in Facebook's revenue growth rate in Q4, management said in its third-quarter earnings call. Specifically, management guided for its revenue growth rate to be around 24% to 28%. Factors expected to contribute to this deceleration, according to Facebook CFO David Wehner, are:
- A higher mix of impression growth "from product surfaces and geographies that monetize at lower rates."
- Headwinds from data privacy initiatives on ad pricing growth.
- More prominent placement of Stories on Facebook at the expense of some ad impressions.
As revenue growth decelerates, Facebook's growth in operating expenses has been accelerating. In the first quarter of 2018, operating expenses were up 39% year over year. In Q2 and Q3, this growth rate was 50% and 53%, respectively.
Based on Facebook's guidance for full-year operating expenses to increase 50% to 55% year over year, investors should expect more sharp growth in expenses in Q4.
Some of the key items driving this increase in expenses are employee headcount growth, investments in video content, spending on safety and security, and augmented and virtual reality efforts.
Facebook has seen some challenges with user growth recently as daily active users in Europe declined sequentially for the second quarter in a row in Q3 and as the key metric was flat in the U.S. between Q2 and Q3. Further headwinds in these key markets are possible as Facebook navigates its high-profile data privacy and security issues. Impressively, however, Facebook is still growing its overall user count. The number of users interacting with at least one of its apps (Facebook, WhatsApp, Instagram, or Messenger) each month increased from 2.5 billion in Q2 to 2.6 billion in Q3. Can this key metric close in on 2.7 billion in Q4?
Facebook will report its fourth-quarter and full-year results after market close on Wednesday, Jan. 30.