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Facebook’s Earnings May Hint at Business Model’s Resiliency

Facebook’s earnings report will come after the bell — and the numbers will tell a tale, perhaps, of business model resiliency.

Facebook has been no stranger to the headlines, where all manner of scrutiny from lawmakers and regulators serves as a reminder of current, and a harbinger of future, pressures.

In an example of the continued PR storm that is brewing for the social media giant, a slew of media outlets have started to publish the “Facebook Papers,” which are tied to internal documents at the company that paint a (perhaps to put it mildly) less-than-flattering portrait of lax content policing.

As for how this all may translate to top- and bottom-line performance: The expectations have already been tempered a bit coming into Monday night’s (Oct. 25) report, where the company said last quarter that “in the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth.”

The company also added that “we continue to expect increased ad-targeting headwinds in 2021 from regulatory and platform changes, notably the recent iOS updates, which we expect to have a greater impact in the third quarter compared to the second quarter.”

Moderating Growth Rates 

The year-over-year growth rates logged in the latest period were impressive. Even as the company was coming off the depths of the pandemic, Facebook said in the second quarter that advertising revenues were up 56% year on year, and daily active users were up 7% year on year to 1.9 billion.

Consensus has baked in the slowdown, where the Street projects that the company’s revenue growth rate will slow to 36% and the top line will come in at $29.3 billion. Earnings will come in, per Wall Street estimates, 17% higher to $3.19 per share.

Key metrics will center on the daily and monthly active user counts, and whether the ongoing pressures will make a dent in the installed base. The company said in its last report that it had a total of 3.5 billion users across Facebook, Messenger, Instagram and WhatsApp, which was up from 3.4 billion users in the first quarter.

Read more: Facebook Highlights eCommerce, Metaverse Plans as Pressure on Ad Business Grows 

We’ll get a sense of how Facebook intends to diversify away from the ad business, though any traction to offset ad revenue headwinds would take time. Facebook’s “other” revenue line accounted for only 1.7% of the total top line last quarter.

In one example, as noted over the summer and in a hint of larger-scale, commerce-related plans, the company said that Facebook Pay will be available off-platform, beginning with Shopify vendors. We may also get some commentary on Diem. But all eyes will be on the ad business Monday evening — as well as the user counts, as the engines that make all the other, nascent business lines feasible.

Also see: Facebook Pay Available off Facebook, Starting With Shopify in August 

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