Facebook reports its third quarter earnings this week, and investors are looking for signs of continued momentum.
The social media giant posts its latest earnings on Oct. 30 after the close of trading, and analysts are expecting largely positive results. Facebook (FB - Get Report) shares were roughly flat on Tuesday at $189.31.
Analysts polled by FactSet are expecting earnings per share of $1.91 on $17.26 billion in revenue for the quarter. That suggests continued growth in Facebook's advertising business, which accounts for the vast majority of its revenue, though it also represents a sales slowdown, noted Zev Fima, an analyst with Jim Cramer's Action Alerts Plus portfolio.
"In the upcoming release, though revenues are expected to decelerate, we will look for a continuation of earnings momentum as we believe advertisers are starting to better understand how to monetize the company's 'Stories' format," Fima wrote in a recent preview.
Underscoring the interest in Stories as a growth driver, BMO Capital Markets' Dan Salmon likened the shift from Newsfeed to Stories to the shift from desktop to mobile advertising.
"We believe ad load growth across Facebook, WhatsApp and Messenger Stories/Status formats continues to grow, particularly as Stories becomes a bigger medium for sharing among friends as News Feed has traditionally been," Salmon wrote on Monday.
Facebook doesn't regularly break out numbers for Instagram, WhatsApp and its core Facebook platform, but investors will also look for signs of continued advertising momentum on Instagram, as well as other emerging sources of monetization, such as a recently released "Instagram Checkout" feature that allows users to purchase items directly within the app.
Shopping is a "core catalyst for Instagram," Salmon noted, and Facebook has introduced updates designed to boost shopping behavior, such as the ability to repurpose Shopping posts as ads in Ad Manager, which was made available on a limited basis in Q3. Instagram also introduced a new "camera-first" app called Threads intended for close friends. On Wednesday, Facebook management could offer commentary on how these initiatives are coming along, and on the bigger picture behind these moves.
Despite overall positive expectations heading into earnings, the continued regulatory pressure on the tech giant can't be avoided -- and investors will be attuned to signs on how, if at all, this may affect its financial performance.
Facebook CEO Mark Zuckerberg recently headed to Capitol Hill to defend Facebook's Libra cryptocurrency initiative, where he was met with a considerable degree of skepticism over Facebook's business practices. Separately, 47 state Attorneys General are investigating Facebook as part of a broader antitrust probe of Facebook and other tech giants.
While no single investigation or hearing has damaged Facebook's stock much, spending on security is one slice of Facebook's financial picture where regulatory impacts can be seen. And Facebook's announcement in its second-quarter earnings report that it was setting aside $5 billion to pay a fine for improper data handling imposed by the FTC overshadowed its earnings beat for the quarter.
"Given the massive regulatory backlash the company has faced in recent years, security investments have ramped up considerably in recent years -- we will therefore be keeping a close eye out for guidance on this front," Fima noted.
Facebook shares are up 40% so far this year.
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