Facebook, Inc. (Nasdaq: FB) investors are gearing up for what may be the company’s most highly anticipated quarterly earnings report in years on Wednesday. Analysts say Facebook’s advertising business likely survived the Cambridge Analytical fallout mostly unscathed, but Facebook’s costs could be on the rise as it prioritizes user privacy.
Facebook’s first quarter was far from typical after the company confirmed in March that data from as many as 87 million Facebook users was shared improperly with research firm Cambridge Analytica during the 2016 campaign season. Facebook faced a major media backlash and a social media campaign calling for users to #deleteFacebook. CEO Mark Zuckerberg even spent two days testifying in front of Congress and assuring Americans that user privacy is a top priority for the company.
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Survey work by Baird suggests the Cambridge Analytica scandal has resulted in declines in user engagement. Analysts also speculate that some advertisers may have reduced their Facebook ad budgets, at least in the short term. Zuckerberg told reporters earlier this month that the scandal has had no “meaningful impact” on Facebook user behavior or its business.
GBH Insights head of technology research Daniel Ives says the first quarter has been the darkest chapter in Facebook’s 14-year history, but this week’s earnings report will shed some much-needed light on the situation.
“[First-quarter] earnings will be the next key step for investors to either boost their confidence in the Facebook story going forward or raise further red flags around the risk profile going forward,” Ives says.
Ives is optimistic that Facebook will be able to report modest beats to consensus analyst estimates of $1.35 in earnings per share and $11.45 billion in revenue.
“We estimate in a worst-case scenario that between $1 billion to $2 billion of annual advertising (-3 percent of revenues) is potentially at risk in 2018,” Ives says.
Morgan Stanley analyst Brian Nowak is also expecting a positive quarter from Facebook, calling for a 34 percent increase in ad revenue, 38 million net new daily active users and a 2 percent earnings beat. Nowak says commentary on rising expenses could be critical as Facebook invests in new data protection initiatives.
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“We look for a solid top and bottom-line beat and DAU growth to help turn sentiment,” Nowak says.
GBH Insights has a “highly attractive” rating and $225 price target for Facebook. Morgan Stanley has an “overweight” rating and $200 target for FB stock.
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FB Stock: What to Expect from Facebook, Inc. Earnings originally appeared on usnews.com
