Facebook (FB) to Report Q3 Earnings: What's in the Cards?

Zacks Equity Research
·5-min read

Facebook FB is set to report third-quarter 2020 results on Oct 29.

For the quarter, Facebook expects DAUs and MAUs to be flat or slightly down in most of its regions, sequentially.

Further, the company expects ad-revenue growth on a year-over-year basis to be roughly 10%. Facebook assumes some of the recent surge in community engagement to normalize as regions reopen.

Notably, the Zacks Consensus Estimate for revenues is pegged at $19.81 billion, indicating an increase of 12.2% from the year-ago quarter’s reported figure.

Additionally, the consensus mark for third-quarter earnings is pegged at $1.93 per share, having been revised 0.5% upward in the past 30 days, but indicating a 9% decline from the figure reported in the year-ago quarter.

Notably, the company’s earnings missed the Zacks Consensus Estimate in one of the trailing four quarters while beating the same in the other three, the average surprise being 9.1%.

Facebook, Inc. Price and EPS Surprise

Facebook, Inc. Price and EPS Surprise
Facebook, Inc. Price and EPS Surprise

Facebook, Inc. price-eps-surprise | Facebook, Inc. Quote

Let’s see how things are shaping up for the upcoming announcement.

Advertiser Exodus to Hurt Ad Sales

Facebook witnessed jump in the usage of its services like Messenger, Instagram and WhatsApp in the second quarter amid growing incidence of the coronavirus pandemic. The momentum is expected to have continued in the to-be-reported quarter.

The Zacks Consensus Estimate for third-quarter MAUs worldwide is pegged at 2.701 billion, suggesting 10.3% growth from the figure reported in the year-ago quarter. Moreover, DAUs worldwide is pegged at 1.786 billion, indicating 10% growth from the figure reported in the year-ago quarter.

Nevertheless, ad sales for the to-be-reported quarter are expected to take a hit from advertiser exodus despite improving ad-spending environment as reflected by Snap’s SNAP recently announced third-quarter results. (Read More: SNAP Q3 Earnings Beat Estimates, User Growth Aids Top Line)

Notably, a number of companies, including Starbucks, Coca Cola and Verizon, among others, have announced plans to freeze ad spending on Facebook due to its failure to eradicate hate speech and misinformation.

Moreover, changes made by Apple AAPL and Alphabet’s GOOGL Google in their mobile operating systems and browser platforms have limited Facebook’s ability to track user-activity trend.

These factors are expected to have hurt Facebook’s advertising-revenue growth in third-quarter 2020.

Nonetheless, the company’s solid user base in the Asia Pacific region and growth in Instagram Stories and Feed are expected to reflect on the top line.

The consensus mark for this Zacks Rank #3 (Hold) company’s third-quarter advertising revenues is pegged at $19.43 billion, indicating 11.7% growth from the figure reported in the year-ago quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Q3 Developments

Facebook announced Instagram Reels that helps users to create and discover short, entertaining videos on Instagram.

Facebook also launched a feature called paid online events that enables businesses, creators, educators and media publishers to set up paid events or classes online and keep 100% revenues — except on Apple’s iOS, where event hosts must give up the 30% App Store tax.

Moreover, Facebook launched Facebook Campus, a college-only platform designed to help students connect with fellow classmates over shared interests.

Facebook CEO Mark Zuckerberg also announced that the social media platform would not accept new political ads during the week before the election. The company would also remove posts that claim that people would get COVID-19 if they take part in voting.

Moreover, Facebook introduced a forwarding limit on Messenger which allowed messages to be forwarded to five people or groups at a time.

The company also announced that users can now transfer Facebook photos and videos directly to two additional services - Dropbox and Koofr - using its latest data-portability tool.

Additionally, Facebook renamed its AR/VR team as Facebook Reality Labs. The team works on several products including Oculus, Portal and Spark AR.

Further, Facebook introduced Quest 2, its next-generation VR device starting at $299. The device started shipping from Oct 13.

Facebook also announced a multi-year partnership with Ray Ban-parent EssilorLuxottica.  The two companies, in collaboration, will release a pair of Ray Ban-branded smart glasses in 2021.

The company also unveiled Project Aria that will help Facebook develop the first generation of wearable augmented-reality devices.

Moreover, Facebook announced partnerships with BlueJeans, GoToMeeting, Webex and Zoom Video to offer even more video-conferencing apps to Portal users. These apps will be available on Portal Mini, Portal and Portal+ in September, with plans to add support for Portal TV in the future.

Facebook announced that it would no longer show health groups in recommendations. However, people can still invite friends to health groups or search for them.

Facebook also introduced Facebook Business Suite that allows businesses to post to Facebook and Instagram at the same time, and manage and receive messages, notifications and alerts in one place.

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