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What to Expect from Facebook's (FB) Q3 Earnings

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Shares of Facebook dipped 2.26% during regular trading hours Monday as part of a larger market decline, which included fellow tech giants Amazon (AMZN - Free Report) , Netflix (NFLX - Free Report) , and Google (GOOGL - Free Report) . With that said, Facebook stock could jump if the company is able to impress investors with strong Q3 financial results Tuesday.

FB Overview

Facebook, along with fellow social media power Twitter , has come under fire for its role in the spread of misinformation and “fake news.” Both companies have spent more to combat these problems, which should help their platforms remain more attractive to users in the long-run.

Facebook’s commitment to spend more money to secure its platform is expected to show up on its income statement. Last quarter, Facebook said its operating margin is expected to fall to the "mid-30s on a percentage basis" over a more than two-year period. Mark Zuckerberg’s firm posted an operating margin of 44% in Q2, which already marked its lowest level in the past five quarters.

 

Despite these concerns, Facebook’s Q3 user grow estimates aren’t too bad. More importantly, Facebook’s average revenue per user in the U.S. and Canada—where it made nearly 50% of its revenues last quarter—is projected to soar 43% from $21.20 in the year-ago period to hit $30.31 (also read: User Growth, ARPU & Other Key Q3 Facebook Estimates).

Facebook’s overall Q3 revenues are projected to jump by 33.8% to reach $13.81 billion, based on our current Zacks Consensus Estimate. The other end of the income statement looks less promising. Facebook’s adjusted quarterly earnings are expected to sink 8.2% to touch $1.46 per share.

With that said, we still need to know if Facebook might top our quarterly earnings estimate, as that could help FB stock, especially in the near-term. Luckily, we can turn to our exclusive Earnings ESP figure to do so.

The Zacks Earnings ESP (Expected Surprise Prediction) compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter. The Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Facebook is currently as a Zacks Rank #3 (Hold) that sports an Earnings ESP of -2.89% Unfortunately, this means that our model is inconclusive. It is, however, worth noting that until last quarter’s $0.01 per share miss, Facebook had topped our quarterly earnings estimates in 11 straight periods.

Facebook is scheduled to release its Q3 financial results after the closing bell on Tuesday.

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