Facebook Q4 2018 Earnings: Should You Buy FB Stock Ahead?

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by Teuta Franjkovic · 4 min read
Facebook Q4 2018 Earnings: Should You Buy FB Stock Ahead?
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Facebook is set to report fourth-quarter 2018 results on Jan 30. Its user base growth will be closely monitored by all. Notably, monthly active users increased 199M on a year-over-year basis and 37M sequentially to 2.271B in the last reported quarter.

Facebook’s top line continues to show tremendous growth. Analysts think that once its revenue got to a certain level that its growth would plateau. That moment has yet to arrive. Implied 26% revenue growth this quarter follows 33% growth in Q3. Operating income only grew 13% Y/Y as operating income margin fell to 42% from 50% in the year-earlier period.

Facebook has increased investments in infrastructure, safety, and security in reaction to regulatory pressures.

Facebook stock plummeted in July 2018 after it had climbed back following its Cambridge Analytica scandal. Stories and worries have continued since last spring. But Facebook is not alone in some of the backlash it has delt with regarding its outsized control over the spread of information, with the likes of Google and Twitter facing similar challenges.

With that said, most investors likely ran away from FB stock because it committed billions of dollars to clean up and safeguard its platform, which it said will likely cause its operating margin to fall into the “mid-30s on a percentage basis” over a more than two-year period. FB’s operating margin sunk to 42% last quarter down from 50% in the third quarter of 2017.

Monthly active users (“MAUs”) are already slowing. More than 2.6 billion people use Facebook, WhatsApp, Instagram, and Messenger each month, up from 2.5 billion in Q2 2018. This is a big selling point to advertisers; they can reach over 2 billion people with one advertising campaign. The question is, “How do you value that pool of users?”

Number of daily active users (DAUs) were 1.495 billion, up 127 million year over year and 24 million sequentially, and represented 66% of MAUs. Asia-Pacific was Facebook’s fastest growing market in the quarter, driven by growth in India, Indonesia and the Philippines. Asia-Pacific DAUs increased 85 million year over year and 15 million sequentially to 561 million.

The Zacks Consensus Estimate for fourth-quarter DAUs Asia and MAUs Asia is pegged at 582 million and 953 million, respectively.

Facebook also stated that more than 2.6 billion people use its “Family” of services, which includes Facebook, WhatsApp, Instagram and Messenger, on a monthly basis. Additionally, more than 2 billion people use at least one of its services daily, on an average.

Analysts Forecast Average Annual Earnings Growth of 18%

If it’s to believe Nasdaq’s analysts, Facebook now faces a couple tough hurdles. Advertisers have yet to flee the company and its massive audience, but there is fear that if Facebook continues to make headlines regarding user privacy that traffic will start to drop significantly, and advertisers will start to sever ties with the social media leader. However, at least for now, earnings continue to rise. And analysts forecast average annual earnings growth of 18% for the next five years.

Given the company’s history of posting big earnings surprises the forecast could be greatly understating what the future actually holds for the company. Facebook is also losing the teen audience with other platforms like Instagram and Snapchat gaining in relevance.

Bull cases for Facebook’s stock typically include some degree of confidence that Instagram, WhatsApp, and Messenger develop into valuable revenue streams. Earlier this month, analysts were saying that it could be more important, down the line, than the company’s newsfeed.

As heard through the Q3 earnings call, this forecast had been reinforced for Q4. Reasons cited for this poorer outlook includes the slower monetization of product services and in certain geographies, impact of data privacy initiatives on pricing growth and displacement of ad opportunities from focusing on growth of new products. Some of these new products mentioned includes the likes of the IGTV and Facebook Watch.

Zuckerberg: “People Assume We Do Things We Don’t Do”

Facebook CEO Mark Zuckerberg gave the interview for the Wall Street Journal, defending his company saying that there were “misreported” claims that the social network sells user data.

He claims that the lack of a price tag on Facebook’s service has become an area of “complexity” when it comes to trying to understand its business model.

“In an ordinary transaction, you pay a company for a product or service they provide. Here you get our services for free — and we work separately with advertisers to show you relevant ads. This model can feel opaque, and we’re all distrustful of systems we don’t understand,” he added.

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Teuta Franjkovic

Experienced creative professional focusing on financial and political analysis, editing daily newspapers and news sites, economical and political journalism, consulting, PR and Marketing. Teuta’s passion is to create new opportunities and bring people together.

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