Facebook (FB) 4th Quarter Earnings: What to Expect

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For a host of reasons, namely its cheap valuation, Facebook (FB) has been one of my top bounce-back candidates to like in 2019. And so far, this prediction is playing out pretty well. Facebook has seen its stock rise 12.5% year to date, besting the 5.5% rise in the S&P 500 index.

But can it continue? The social media giant is set to report fourth quarter fiscal 2018 earnings results after the closing bell Wednesday.

For the three months that ended December, the Menlo Park, Calif.-based company is expected to earn $2.19 per share on revenue of $16.4 billion. This compares to the year-ago quarter when earnings came to $1.44 per share on revenue of $12.97 billion. For the full year, earnings are projected to rise 36.7% year over year to $7.37 per share, while full-year revenue of $55.32 billion would rise 36.1% year over year.

After a tumultuous 2018, during which it succumbed to a number of public relations fiascos, the enthusiasm investors once had for the company has waned. Complicating matters, there is now evidence of slowing user growth, which in recent quarters has spooked investors. Indeed, with 2.27 billion monthly active users as of the third quarter, the core Facebook platform is slowing a bit. It’s the law of large numbers.

Even so, the underlying health of the company remains strong, given that some 10% of ad spending in the U.S. in 2018 is expected to have gone to Facebook. What’s more, as of the third quarter, time spent on the core Facebook platform surged to 50 minutes per day. Compare that to an average of 18 minutes per day five years ago. On Wednesday, Wall Street will want some confirmation that Facebook’s growth is far from over.

Despite issuing revenue and downbeat guidance in the third quarter, there are also other reasons to remain positive about what Facebook will say on Wednesday. Reports that the company is working to integrate its messaging services — Facebook Messenger, Instagram, and WhatsApp — could be a big revenue boost in 2019. As of right now, each serve as a stand-alone services, but linking them together can turn messaging into more of a revenue driver for the company.

While there continues to be headline risk associated with user privacy and increased risks of U.S. government regulations, the bull case for Facebook’s growth is often centered around Instagram’s success and the company’s ability to monetize its messenger services. It would seem the company is now taking a serious step in that direction.

Meanwhile, from a valuation perspective, Facebook stock is priced at just 19 times fiscal 2019 earnings per share estimates of $7.38, which is about 14 points below where it was a year ago. And that’s pretty impressive for company that is still growing annual revenue at 36%. While revenue and earnings growth estimates have come down in recent weeks, the stock — currently trading at $147 — is some 25% below its consensus price target of $185 and 50% below its 52-week high of $218.

It would seem, given its recent announcement to add $9 billion to its buyback authorization, Facebook also realizes how attractive its stock has become.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Referenced Symbols: FB

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