Earnings preview: Facebook likely to prevail in Q2 despite troubles

Facebook Inc. (NASDAQ: FB) is scheduled to report second quarter 2019 earnings results on Wednesday, July 24, after regular hours. Analysts expect the company to report earnings of $1.87 per share on revenue of $16.5 billion.

Facebook stated earlier that its revenue is expected to decline sequentially on a constant currency basis throughout 2019. Based on this, one can expect the second quarter top line numbers to slide down from last quarter.

The company was recently handed a $5 billion fine by the Federal Trade Commission (FTC) and this charge is likely to impact the bottom line numbers. The company has also been investing heavily in measures to improve privacy and safety on its platform which has resulted in higher expenses that are also likely to impact earnings.

Facebook has had its share of controversies for a while now from investigations over privacy and antitrust concerns to demands for its breakup from various quarters. The company’s launch of its cryptocurrency Libra was also heavily panned by several parties.  

However, despite these headwinds, there are reasons to be optimistic. Facebook’s Stories feature, which is now available on all its product platforms, continue to be hugely popular and this momentum is growing.

In addition, even though the company faces tough competition in the digital ad space from Alphabet’s (NYSE: GOOGL) subsidiary Google and Amazon (NYSE: AMZN), it still has a strong footing in this space.

Looking ahead, analysts believe that despite these temporary challenges on the regulatory side, Facebook has opportunities to grow its revenue and earnings as the company introduces new ways to keep users engaged.

In the first quarter of 2019, Facebook topped market forecasts for revenue and earnings. Revenue grew 26% year-over-year to $15.1 billion while EPS, despite falling 50% to $0.85, came ahead of estimates.   

The company saw growth in Daily Active Users (DAUs) and Monthly Active Users (MAUs) both on a sequential and year-over-year basis. Advertising revenues, which make up the majority of total revenues, grew 26% year-over-year.

Facebook’s shares have gained over 50% so far this year and 12% over the past three months. The stock is down 4% in the trailing 52 weeks.

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