Back to top

Image: Bigstock

Facebook (FB) to Report Q1 Earnings: What's in the Cards?

Read MoreHide Full Article

Facebook, Inc.  is set to report first-quarter 2017 results on May 3. The company reported a positive earnings surprise of 11.7% in the last quarter. It has also delivered an average positive earnings surprise of 19.53% over the trailing four quarters.  Let’s see how things are shaping up for this announcement.

Factors to Consider

Online and mobile advertising revenues will continue to be in the spotlight in the upcoming quarterly earnings release. Facebook’s mobile ad business has become the mainstay of its advertising revenues. Mobile monetization has increased with a higher number of marketers, continuing investment in new products and robust performance of its newsfeed ads. Notably, in the fourth quarter, mobile ad revenues were $7.2 billion (up 61% year over year), contributing 84% to ad revenues. 

Facebook’s push into “Live” is expected to be a big contributor to the top line. Facebook has been aggressively promoting “Live” in order to capture the opportunity presented by ever-increasing video viewing on social media platforms. Also, it has launched a free version of its enterprise software, Workplace.

Ever since its availability to worldwide advertisers last year, Instagram’s ad platform emerged as an important cash cow for Facebook. With over 600 million users, Instagram is now set to join the company’s other billion plus platforms, Facebook, Messenger and WhatsApp. Investors will once again be focused on Instagram’s money minting abilities to boost overall ad revenues for the company. After Instagram, investors will be looking at the company’s detailed monetization efforts for Messenger and WhatsApp.

Facebook’s huge user base of over 1.8 billion enables it to fend off any competition. However, with the user base already at sky-high levels, a relative slowdown is imminent. Also, it is approaching full penetration in North American and European markets. Nevertheless, growth in Asia and rest of the world should help cushion user growth in the foreseeable future. In the past one year, the company’s shares have generated a return of 26.74%, compared with the Zacks Internet Services industry’s gain of 19.64%.

Facebook was never intended to be just a social media service. In the past few months, Facebook more than ever clearly highlighted its ambitions of becoming a tech powerhouse. At its latest F8, Facebook announced that it continues to work on developing cutting edge artificial intelligence (AI) and augmented reality/virtual reality (AR/VR) technology. It also unveiled its virtual social network called Facebook Spaces.

Facebook, Inc. Price and EPS Surprise

Facebook, Inc. Price and EPS Surprise | Facebook, Inc. Quote

However, Facebook faces a number of challenges. It needs to tread cautiously so as not to irritate users with too many ads. Competition from the likes of Snapchat (SNAP - Free Report) and Google for ad dollars is also concerning. Facebook, as expected, maintains a cautious stance on future growth prospects.

At the last conference call, the company stated that revenues will now face tougher year-over-year comparisons. However, the high revenue growth rate was expected to stabilize eventually. We believe that Facebook will continue with the good show going ahead as it has ample growth catalysts. 

Earnings Whispers

Our proven model does not conclusively show that Facebook is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Facebook has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 88 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Facebook’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks that, as per our model, have the right combination of elements to post an earnings beat this quarter:

AMTEK Inc. (AME - Free Report) has an Earnings ESP of +1.79% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

GoDaddy Inc. (GDDY - Free Report) has an Earnings ESP of +125.00% and a Zacks Rank #3.

Sell These Stocks. Now.

Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These are sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500. See today's Zacks "Strong Sells" absolutely free >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


AMETEK, Inc. (AME) - free report >>

GoDaddy Inc. (GDDY) - free report >>

Snap Inc. (SNAP) - free report >>

Published in