What to Expect When Facebook Reports Q4 Earnings

When one of the big tech companies starts struggling, people notice. And when that name is Facebook (NASDAQ:FB), it has the potential to affect a lot of people. After all, Facebook stock is one of biggest names on Wall Street, with a market capitalization of more than $765 billion.

someone using the Facebook (FB) app on their phone in front of a laptop that also has the Facebook webpage on it

Source: Chinnapong / Shutterstock.com

Facebook has been a reliable performer over the last few years, climbing more than 200% since 2016. But Facebook stock is stumbling out of the gate in 2021, down about 2% so far this year.

Part of this is political backlash. Facebook and other Big Tech companies temporarily suspended President Donald Trump’s account on its platform as well as Instagram. Those moves triggered complaints of censorship as some of Trump’s supporters began seeking out alternative platforms.

There also have been plenty of calls by Trump and his supporters in the Republican Party to repeal Section 230 of the Communications Decency Act. The repeal would be a way to punish Facebook and other social media platforms, but it’s unlikely that such an effort will find traction under President-elect Joe Biden’s administration and Democratic control of both houses of Congress.

Regardless, the controversy hasn’t been good for Facebook stock.

Facebook Stock at a Glance

Regardless of where you fall on the Section 230 debate, there’s no denying that Facebook is a juggernaut. Third-quarter earnings included $21.5 billion in revenue, which was a 22% increase from a year ago. Analysts had expected $19.84 billion. Earnings per share (EPS) also beat analysts’ expectations, recording $2.71 per share versus $1.91 the previous year.

Facebook said it had 1.82 billion daily active users, which was up 12% from a year ago. Monthly active users came in at 2.74 billion, which was also an increase of 12%.

That kind of advertising reach is unmatched in other social media platforms, and it’s a huge revenue stream for Facebook stock. The company said it earned $21.2 billion in advertising revenue, which was a 22% increase from a year ago.

The only real red flag in the report was that Facebook saw a slowdown in growth from the second quarter to the third quarter from the U.S. and Canada. The company says that is a result of higher-than-anticipated traffic in Q2 as the novel coronavirus pandemic took hold in North America.

So, it won’t be a surprise to see a similar slowdown in Q4, considering how elevated Facebook’s numbers were in the second quarter of 2020.

Antitrust Allegations

As I wrote recently, Facebook is also facing antitrust lawsuits by the Federal Trade Commission and 46 state attorneys general. The lawsuits call for Facebook to divest itself of its Instagram and WhatsApp products, breaking into smaller companies.

Even if Facebook loses those lawsuits — and that’s a distinct possibility — its unlikely that the company would be forced to break up. It’s much more likely that the company will be forced to pay a fine and to withstand closer regulation.

Neither of those outcomes would have a long-term impact on Facebook stock.

The Bottom Line

Facebook will report its fourth-quarter and full-year 2020 earnings on Jan. 27, and I’m expecting more big numbers for FB stock.

While analysts will undoubtedly ask CEO Mark Zuckerberg about the antitrust lawsuits, Section 230 and backlash from Trump supporters, the most significant numbers will be Facebook’s continued growth path in monthly average users, daily average users and advertising growth.

If Facebook can continue its upward trend in those categories, the slight drop in FB stock to start 2021 is going to be a distant memory.

In fact, this period in January may be seen as a rare buying opportunity to get Facebook stock while its roughly 20% off its all-time highs.

On the date of publication, Louis Navellier had a long position in FB. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation

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