Facebook Inc (NASDAQ:FB) is bumping its head against all-time highs as it storms toward Wednesday evening’s first-quarter earnings report. Since its initial public offering in May 2012, FB stock has gained nearly 300% to reach a market cap of more than $440 billion.
That makes Facebook the fifth most valuable company in the world, and it also puts FB in the not-so-comfortable situation of having to be able to justify these kinds of returns with ever-impressive financial results despite the company’s increasingly mature business.
What’s next for the social media giant, then? We’ll get a better idea after the bell, when analysts expect Facebook to report earnings of $1.12 per share on a 45% jump in revenues to $7.82 billion.
The top-line forecast isn’t as torrid as in prior quarters (at levels of 50%-plus growth for revenues). But keep in mind that Facebook has already signaled a deceleration in 2017, thanks to factors such as lack of available ad capacity and the simple difficulty of churning out growth when revenues are already so large.
Let’s look at a few things FB stock holders and potential investors should look for in Wednesday’s Facebook earnings report:
3 Big Items
The Battle Royale: Mark Zuckerberg knows how to fight off competition. He has already brought MySpace to its knees, and Twitter Inc (NYSE:TWTR) has been relegated to an also-ran. No doubt, his attention is squarely focused on Snap Inc (NYSE:SNAP) — to the point where he’s knocking off popular features.
In hindsight, Zuckerberg’s $1 billion purchase of Instagram in April 2012 looks prescient, and could go down as one of the best buys in tech history. The app has more than 700 million monthly active users and likely is growing faster than Snapchat.
But Instagram isn’t just about leveling Snap — it likely will be necessary to provide additional ad inventory to pump up revenues.
User Growth: This is perhaps Facebook’s most important metric. The good news is that FB is prolific at keeping this counter high. During the prior quarter, the company reached 1.86 billion MAUs, which was up 17% on a year-over-year basis. Wall Street is looking for 1.91 billion MAUs for Q1.
F8: Facebook’s F8 conference featured an assortment of cool technologies.
Some were downright wacky, such as a brain-to-computer interface and even the ability for skin to hear language. But FB stock holders will want to hear more about the initiatives with a much more immediate impact.
One area will be augmented reality, specifically concerning technologies that enhance Facebook’s camera experience. Analysts also will probably drill down on the efforts for Messenger, which has about 1.2 billion MAUs. While monetization has been minimal, this is likely to change soon.
The play for Messenger is to target the massive local commerce market. Facebook is currently implementing systems that make it easy for companies to create their own bots. This has seen some activity already, with brands including Subway, Yum! Brands, Inc. (NYSE:YUM) and Domino’s Pizza, Inc. (NYSE:DPZ) utilizing bots that allow customers to place orders on Messenger.
Bottom Line on FB Stock
It’s true that Facebook has a history of beating the Street, but this time could be different given the high expectations and the ever-increasing ceiling on just how many human beings Facebook can bring into the fold.
My advice would be to hold off on buying FB stock ahead of earnings. Any good news looks well baked in already, and the chances are low that Facebook can mount a serious pop after what it’s already done.
Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.