Facebook earnings: What to watch
SAN FRANCISCO — Facebook is scheduled to announce fourth-quarter earnings after the market closes Wednesday.
EARNINGS: Facebook is expected to report earnings per share, excluding certain expenses, of $1.31, up from 79 cents a share a year ago.
REVENUE: Facebook is expected to report fourth-quarter revenue of $8.5 billion, up from $5.84 billion a year ago.
STILL A GROWTH STORY?: In November, Facebook said advertising revenue growth would "come down meaningfully" starting in the middle of 2017 as Facebook reduces its "ad load," the number of ads it shows users in their News Feed.
The announcement wiped out billions in market value. Now analysts expect the giant social network to record the slowest rate of revenue growth since the third quarter of 2015.
Analysts are betting mobile app Instagram will boost Facebook's fortunes. And then there's the revenue potential for messaging apps Messenger and Whats App. Facebook is testing News Feed-like ads in Messenger.
"Facebook maintains many levers to support ongoing growth that should exceed industry averages," Pivotal Research analyst Brian Wieser says.
According to eMarketer, Instagram will generate $3.64 billion in worldwide ad revenue in 2017, a 96% increase over last year.
Wedbush Securities analyst Michael Pachter says he expects long-term growth from all three, with Instagram contributing $4 billion to $5 billion in revenue growth within the next two years.
"WhatsApp and Messenger, with more than one billion monthly active users each in the third quarter, are likely to monetize later and more slowly, but we expect these platforms to add over $3 billion to revenue growth in the next two years," Pachter wrote in a research note.
WILL 2017 BE AN EXPENSIVE YEAR? SunTrust analyst Rodney Hull says he expects 2017 to be a "significant" investment year as Facebook increases spending on data centers and new engineers, among other things.
"We believe our estimate for about 47% operating expense growth year over year captures a reasonable expansion in spending of about $4 billion year over year vs. about $2.4 billion increase in 2016," Hull wrote in a research note.
Jefferies analyst Brian Fitzgerald says expense growth is a "potential concern," but Facebook "has a history of "under-promising and over-delivering in this area."
NOT YET VIDEO FIRST: Analysts are keeping a close eye on Facebook's "video first" initiative.
Facebook CEO Mark Zuckerberg believes that within five years most of what people consume online will be video, subsuming words and photographs. And he's determined to catch this next big content wave — and escalate competition for eyeballs and advertising dollars with the buzzy and youth-friendly mobile app Snapchat and with Google's YouTube.
With good reason. Video ads are lucrative, and give Facebook a better shot at competing for television ad dollars, a $70 billion prize in the U.S.
Facebook is promoting videos to its users with a new video tab and it recently said it would show users longer videos in News Feed. It's also letting publishers monetize videos with mid-roll ads.
"Every 1% gain in market share for TV ad budgets in the U.S. would equal about 2% lift to 2017 ad revenues," Hull said.
Up next: Facebook is looking into its own original video programming. But, says Wieser, Facebook has a long ways to go before it can crack open the TV ad budget bucket.
"Facebook’s efforts to do the same have mostly been unsuccessful to date given the relatively limited volumes of professional and semi-professional content consumed and monetized at the social network," he wrote in a research note.