As the social media giant continues to face controversy, investors will be keeping a close eye on the company’s Q2 results on Wednesday and their impact on the Facebook share price.
The company had an impressive first quarter, with both average revenue per user and overall revenue coming in above expectations. Average revenue per user came in at $6.42, with overall revenue of $15.08bn, topping forecasts of $6.39 and $14.98bn respectively. Daily and monthly active users were at 1.56bn and 2.38bn: both were in line with forecasts.
Facebook share price remains robust despite scrutiny
So far this year, the Facebook share price has risen more than 50% – more than double the rate of the Nasdaq’s composite index increase. As of yet, the company doesn’t appear to have been affected by a spate of unfavourable news and heightened scrutiny.
Indeed in April, investors shrugged off the announcement of a $5bn fine from the US Federal Trade Commission over privacy violations. On the day the fine was announced, the Facebook share price hit its highest price in nearly a year. The company took a $3bn one-off hit in its first quarter in anticipation of the settlement.
Facebook’s cryptocurrency, Libra, generates backlash
Facebook’s announcement in June that it will be launching its own digital currency, Libra, has also attracted scrutiny, in particular from the Trump administration. President Trump said he was ‘not comfortable’ about the idea of Facebook offering a cryptocurrency, and if they want to become a bank the group must seek a ‘banking charter’. US treasury secretary, Steven Mnuchin, also cautioned that the digital currency could be misused.
A range of other regulators and politicians, including the Bank of England’s governor Mark Carney, have promised that Libra will face one of the most heavily scrutinised technology launches in history.
This backlash could signal longer-term difficulties and increased regulatory tightening for the company. Last year the Facebook share price was damaged by a series of privacy controversies, including the Cambridge Analytica scandal. It is also facing a Justice Department investigation into its business practices, as well as stricter data-privacy legislation that could restrict how it collects and uses personal information.
What to expect from Facebook’s Q2 results
However, despite the attention it has attracted from politicians and regulators, Facebook’s Q2 outlook still looks largely positive. It is expected to reveal a profit of $5.4bn for the three months to June on Wednesday, which would make it the company’s second most profitable quarter ever.
Revenues are predicted to come in at $16.5bn, with earnings per share of $1.87 expected, up from the $1.75 forecast at the beginning of the quarter. Analysts are looking for monthly active users of 2.41bn, which would be an increase of 8% year-over-year.
The company’s potential to continue to reach new users in emerging markets, such as India, should continue to serve it well. But while the number of users continues to expand, the rate of growth and frequency of usage is slowing. A series of privacy breaches and the high-level scrutiny Facebook has seen, could have impacted on consumers’ perceptions of the company, and higher costs as it employs extra staff to scrutinise online content may weigh on its margins.
The potential for a shift in user engagement was highlighted last week when Netflix, who also list on the Nasdaq with Facebook, fell short of its forecasts for new subscribers. Facebook releases Q2 results after US markets close on Wednesday.