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Facebook Earnings: What to Watch

By Daniel Sparks – Updated Apr 21, 2019 at 11:36PM

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Expect further deceleration in the social network's business growth.

Social network Facebook (META -2.36%) is slated to report its fourth-quarter and full-year financial results next Wednesday. With shares down about 30% since the stock hit an all-time high of $218.62 last summer, the pressure is on. Decelerating growth, some high-profile privacy and security issues, and a decline in the stock market that hit tech stocks particularly hard during the fourth quarter of 2018 have been some of the main factors weighing on shares.

When the company reports results on Jan. 30, you can bet investors will be paying close attention. Ahead of the report, here's a look at some areas worth watching.

Facebook CEO Mark Zuckerberg discusses the company's 10-year roadmap at F8 2018.

Image source: Facebook.

Revenue and earnings-per-share growth

Highlighting the social network's decelerating growth recently, Facebook's year-over-year growth rates for both revenue and earnings per share have come down substantially in recent quarters. For instance, Facebook's revenue and EPS jumped 49% and 63% year over year, respectively, in Q1, but these metrics increased just 33% and 11% year over year, respectively, in Q3

For Facebook's fourth quarter, investors should expect a further deceleration in the company's revenue growth rate, in line with management's forecast in its third-quarter earnings call for fourth-quarter revenue to rise about 24% to 28% year over year. 

EPS for the period, however, is far more difficult to estimate since a small fluctuation in Facebook's revenue growth rate or operating costs could have a significant impact on the company's EPS growth. But assuming revenue rises 26%, operating costs rise 55% (bringing Facebook closer to its guidance for full-year operating costs to increase 50% to 55% compared with 2017), and Facebook's tax rate is about 15%, EPS will likely be around $2.19. While this represents more than 50% year over year for the metric, EPS in the year-ago quarter was negatively impacted by a one-time charge related to the 2017 Tax Cuts and Jobs Act. When excluding this charge in the comparison, earnings per share of $2.19 in the fourth quarter of 2018 implies approximately flat year-over-year growth in the key metric.

Users

Investors will also want to check on Facebook's new user metric, which it just started reporting last year. In contrast with Facebook's monthly active user metric, which focuses on only one app's users at a time, the new metric measures the number of people who use at least one of the company's apps each month, giving investors a picture of the company's overall network. "We believe this is a better way to measure our community over time, because so many people use more than one of our apps," Facebook CEO Mark Zuckerberg said in the company's third-quarter earnings call.

Facebook said over 2.6 billion people were using Facebook, WhatsApp, Instagram, or Messenger each month in Q3. This was up from 2.5 billion in Q2. Can the social network keep up this impressive growth?

Operating cost guidance

Finally, investors should check on Facebook's operating cost guidance for 2019. "I expect 2019 to be another year of significant investment," said Zuckerberg in the company's third-quarter earnings call. At the time, management was calling for operating costs to rise 40% to 50% in 2019 versus 2018.

Is management still expecting such sharp growth in costs?

Facebook reports its fourth-quarter results after market close on Jan. 30. 

Check out the latest Facebook earnings call transcript.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.

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