Facebook Earnings Preview: Strong Revenue Growth Expected Despite Negative Sentiment Among Users

by Trefis Team
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Facebook’s (NASDAQ:FB) is scheduled to announce its Q1 results on Wednesday, April 25. The company has been in the limelight in the last month after it was revealed that Cambridge Analytica harvested data of 87 million profiles (over 70 million from the U.S.). This resulted in a lot of negative press and some negative sentiment among both users as well as investors. However, as these developments happened toward the end of the quarter, they are unlikely to have a material impact on results for the quarter. It could, however, have an impact on Facebook if large sets of users across global markets decide to refrain from using Facebook and related apps such as Instagram in the long run, though that seems relatively unlikely at the moment.

Earlier this year, Facebook introduced a new privacy center for users from Europe following regulatory guidelines by the European Union’s General Data Protection Regulation (GDPR). This EU data protection law will be applicable from May this year. However, Facebook decided to shift responsibility of around 1.5 billion users (mainly from Asia-Pacific, Africa and Latin America) away from its international headquarters in Ireland to its main offices in California. This move is being seen as an effort by the company to to avoid further scrutiny and legal liabilities under the GDPR. These 1.5 billion user profiles (excluding those from Europe) will no longer come under stricter GDPR laws that govern what kind of data and how much of it technology companies can collect and require these companies to disclose breaches, among other details. Non-compliance with GDPR could mean that the EU can fine companies up to 4% of global revenues, which is a huge amount for a large company such as Facebook.

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Expectations For The March Quarter

For the March quarter, we expect Facebook to continue to report strong revenue growth across regions. The company’s massive acquired user base should complement the consistently increasing realized revenue per user. As a result, we forecast Facebook’s net revenue to increase by over 30% to $10.5 billion, while net income and EPS are expected to increase by over 20% on a y-o-y basis. We have summarized our expectations on our interactive dashboard platform. If you disagree with our forecasts, you can change the key drivers – such as active users and average revenue per user (ARPU) – for Facebook segment to gauge how changes will impact its expected revenue. You can also change expected margins to arrive at the expected EPS for the quarter.

 

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