Facebook Reports Earnings on Wednesday: 3 Key Things to Watch For

Investors will be watching for signs of progress on newer initiatives like peer-to-peer payments and commerce, as well as continued strength in Facebook's core ad business.
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Facebook's  (FB) - Get Report earnings are on deck, and investors are hoping they'll kick off another year of growth for the tech giant. 

Facebook was among the best-performing FAANG stocks of 2019, despite continuing heavy scrutiny of the scandal-laden social media giant. For the fourth quarter, analysts polled by FactSet are expecting sales of $20.88 billion and earnings of $2.52 per share for the quarter. 

In October, Facebook CEO Mark Zuckerberg warned of a challenging year ahead, despite a favorable profit outlook by most accounts. Here are a few issues likely to come up on Facebook's earnings call:

1. Monetizing WhatsApp

Despite having billions of users, Facebook’s WhatsApp messenger doesn’t generate much revenue. And whatever Facebook’s plans are for WhatsApp, they apparently won’t include advertising anytime soon. The Wall Street Journal reported several weeks ago that Facebook is shelving plans to run ads on WhatsApp’s “status” feature -- a form of sharing akin to Facebook or Instagram Stories -- and will instead pursue monetization by way of business-to-consumer communications. 

On recent earnings calls, Facebook executives have discussed aspirations to repurpose WhatsApp for peer-to-peer payments or business messaging, but little has materialized yet. WhatsApp remains a popular, but untapped revenue opportunity for Facebook. On its upcoming earnings call, investors may hear more about any progress on that front, and/or reasons for pursuing, and not pursuing, particular strategies.

2. Progress on Payments

To keep its valuation growing at a robust clip, Facebook needs to diversify its top line beyond advertising, which constitutes around 98% of its overall yearly revenue. Early last year, Facebook announced that it would begin prioritizing peer-to-peer interactions, including messaging and private groups, over public posting -- and the company believes that payments and other commercial transactions are a natural complement to this. 

With Facebook’s Libra project seemingly stalled, Facebook Pay -- which it began rolling out late last year -- could be the linchpin of Facebook’s payments plan. Analysts expect that it could help products like Facebook Marketplace reach their full potential. While Facebook is unlikely to report any revenue from Facebook Pay in Q4, it may offer commentary on what feedback they’ve received -- and where payments might be heading.

3. Regulatory Overhang

Almost two years after Cambridge Analytica, Facebook’s stock has recovered -- and then some. And investors have gotten used to shrugging off noise about potential regulation of the tech giant. But that doesn’t mean it’s going away, or that regulation on multiple fronts won’t influence Facebook’s performance down the road -- in December, for instance, Facebook shares tumbled 3% on a report that the FTC was considering an injunction barring Facebook from integrating the back-ends of Instagram, WhatsApp and core Facebook. 

More recently, it’s been reported that Facebook is claiming that parts of CCPA, California’s sweeping privacy law that went into effect on Jan. 1, doesn’t apply to them, potentially setting up an eventual battle with California’s attorney general once the law becomes enforceable this summer. On Facebook’s last earnings call, CEO Mark Zuckerberg launched into a forceful defense of Facebook’s controversial policy on political ads and warned of a “very tough year” in 2020 given the U.S. presidential election. Executives could further elaborate on how they plan to navigate possible choppy waters ahead. 

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