Facebook (FB, Financial) will be reporting its first quarter 2017 earnings on May 3 after market close. Facebook’s revenue growth has been on a tear and, looking at the past eight quarters, there has been no sign of a slowdown despite Facebook’s chief financial officer trying his best to moderate investor expectations during the third quarter 2016 earnings call, saying that Facebook’s ad load is already at a high level and reiterating the statement during the Morgan Stanley Technology, Media & Telecom Conference in February this year.
“Chief Financial Officer Dave Wehner told analysts that 'consistent with my comments on the third quarter call, we continue to expect that our ad revenue growth rate will come down meaningfully in 2017,' the main reason being, as articulated previously, the rate of ads put on Facebook pages, dubbed 'ad load,' is diminishing.” ”‹– Barrons
“Turning now to the outlook. First, on revenue, the outlook is unchanged. Consistent with my comments on the third-quarter call, we continue to expect that our ad revenue growth rate will come down meaningfully in 2017. The factors driving this expectation remain the same. We also expect that our full year 2017 payments and other fees revenue will decline compared to full year 2016.” ”‹– David M. Wehner during Fourth-quarter Earnings Call
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Facebook’s revenue growth for full fiscal 2016 was 57%, and the best part is that revenues grew sequentially during the last four quarters. Though Facebook’s CFO should know a lot more than any of us, we are yet to see any evidence of a slowdown. There is one more factor – by the name of Instagram – that is growing at a furious pace, which could help Facebook keep its strong double-digit growth sustained for a little longer.
Around December last year Instagram crossed 600 million global users, and it collected 1 million advertisers by the end of March this year. To put that number in perspective, Instagram’s parent, Facebook, reached the 5 million advertisers milestone a few weeks back. Instagram is growing, and its advertiser list is also growing, and it will add more muscle to Facebook’s topline.
Wall Street is expecting a consensus EPS of $1.12 with a consensus revenue forecast of $7.82 billion, little less than 50% growth year over year. The market is already expecting the growth rate to come down slightly compared to last year, but how close Facebook gets to the estimate – or how much above it it goes during the first quarter – will directly impact its stock price in the short term.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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