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Facebook (FB) Q4 Earnings Preview: Will Live Pay Off Big?

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Social media behemoth Facebook (FB - Free Report) is expected to release its fourth-quarter earnings report next Wednesday. The company is currently riding a five-quarter earnings and revenue beat streak, but management has already warned investors that year-over-year comparisons will be tougher as it laps a strong 4Q15.

Earnings Outlook

Our current Zacks Consensus Estimates for Facebook’s earnings and revenue reflect EPS of $1.13 and sales of $8.44 billion. These figures would represent year-over-year growth of 91.37% and 44.53%, respectively.

While this certainly sounds impressive, Facebook has remained wary over the possibility of slumping growth rates. After all, the company already posted ridiculous revenue growth of more than 44% in the year-ago quarter, which means it well be hard-pressed to outmatch that this year.

In fact, in Facebook’s third-quarter earnings call, Facebook CFO David Wehner warned investors that the company continues to “expect that revenue growth rates will decline in Q4 as we lap a strong fourth quarter in 2015.”

Nevertheless, Facebook’s minor revenue woes do not seem to be slowing down its earnings growth.  The social media giant has seen two positive earnings estimate revisions over the past 60 days, including one within the last week, moving its Zacks Consensus Estimate three cents higher in that time.

This solid estimate revision activity has helped earn Facebook a Zacks Rank #2 (Buy). However, the Most Accurate Estimate currently sits a penny lower than the Zacks Consensus Estimate, giving the stock a negative Earnings ESP and making surprise prediction more difficult.

User Growth and Facebook Live

At the end of Facebook’s third quarter, the company’s flagship site had 1.79 billion monthly active users (MAUs), up 16% year-over-year. Investors can expect similar year-over-year user growth for Facebook this quarter.

Facebook did not update its user metrics for its other sites last quarter, but the latest figures peg WhatsApp and Messenger’s user bases at 1 billion MAUs each, while Instagram was at about 600 million MAUs.

The most important operational metric to look out for this quarter will be Facebook Live’s growth. Facebook opened up its live streaming capabilities to all users last May, and since then the company has doubled (maybe even tripled) down on its belief in Live.

You may have seen an ad somewhere encouraging you to “Go Live,” and that campaign reflects Facebook’s perception of the idea. Live streaming was once considered a useful tool for digital content creators, but Facebook Live has ushered in a new era of streaming that promotes more frequent, day-to-day interactions.

Overall, Facebook has placed a significant emphasis on video and picture sharing over the past few years; a typical newsfeed is now mostly pictures and video clips. Facebook Live is another example of that, and it will be interesting to see how well the concept is working for the company.

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