Facebook, Inc. (Nasdaq: FB) is expected to report fourth-quarter earnings later this month, but investors have a lot to look for other than the top- and bottom-line numbers for Facebook stock. In fact, according to William Blair analyst Ralph Schackart, revenue and earnings numbers from last quarter will take a back seat to management commentary about a critical 2018 for Facebook.
Schackart says Facebook will likely report at least in-line fourth-quarter revenue growth at or above 43 percent, but investors will be most concerned with management commentary related to the recently announced changes to Facebook’s News Feed.
[See: 7 of the Best Stocks to Buy for 2018.]
Last week, Facebook CEO Mark Zuckerberg announced the company will be changing its News Feed this year in an effort to improve user experience. As a result, Zuckerberg said users will soon notice fewer News Feed posts from publishers and advertisers and more content from friends.
The announcement initially sent Facebook stock lower by more than 4 percent on investor concerns that the changes could cost Facebook precious advertising revenue. In the most recent quarter, Facebook reported $10.1 billion in ad revenue, roughly 98 percent of the company’s total revenue.
After speaking with a large digital ad buyer, Schackart says the News Feed changes could actually result in more pricing power for Facebook. The industry insider says Facebook ad pricing could increase up to 25 percent, but it may be another six months before the full impact of the changes becomes clear.
In addition to News Feed commentary, Schackart says 2018 guidance is critical for FB stock.
“The buy-side is looking for updated/tightened operating expense guidance (45 to 60 percent growth previously established), updated capital expenditure guidance (about $14 billion previously established), and initial tax rate guidance,” he says in a research note.
Finally, investors should look for any updates on key long-term growth initiatives, including Facebook Watch, Instagram monetization and Messenger products.
Despite concerns over the News Feed changes, Schackart remains bullish on Facebook stock at its current price. William Blair estimates the stock currently trades at about 18 times consensus 2018 earnings before interest, taxes, depreciation and amortization, roughly a 7 percent discount to its two-year average.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
“We believe the shares have upside to $200-plus per share over the next 12 months based on a combination of multiple expansion and shares growing in line with EBITDA growth,” Schackart says.
William Blair has an “outperform” rating for FB stock.
More from U.S. News
6 Things to Know About Mark Zuckerberg’s Manifesto
9 Investing Myths That People Still Believe
8 of the Most Incredible Investments of the 21st Century
Facebook, Inc. Earnings: What to Expect From FB Stock originally appeared on usnews.com
