Reports Q4 2020 results on Wednesday January 27, after market close
Expected Revenue: $ 26.31 billion
EPS Forecast: $ 3.16
Judging by the company's remarkable turnaround in the third quarter, Facebook (NASDAQ 🙂 will again report strong sales when it releases its latest quarterly results tomorrow.
Sales are likely to increase to $ 26.31 billion, up 21% from the same period a year ago, while earnings per share are expected to increase to $ 3.16 from $ 2.56 a year ago, according to analyst consensus forecast gathered by Investing.com.
Strong digital ad spend during the holiday season, when buyers made much of their purchases online during the pandemic, are behind these strong predictions. And there is no evidence that the social media giant will disappoint on this front. Facebook has taken a careful look in the past and then exceeded expectations.
But despite this improving outlook after a few tough ones, Facebook stock has remained within reach for the past three months. After hitting an all-time high in August and recovering strongly from the March nosedive, FB shares actually fell 4% in the past quarter.
Will there be another burst of quarterly Facebook stock breaking out of this slow period?
Figuring that out is a bit tricky. The California-based company is facing unprecedented regulatory challenges, which have increased uncertainty about the company's future.
Facebook was sued in December by US antitrust officials and a coalition of states seeking to break up the company for calling the acquisitions of Instagram and WhatsApp illegal. These deals were part of a campaign to illegally suppress competition, according to the government.
The Biggest Regulatory Attack
The cases represent the largest regulatory attack on Facebook in the company's history. They are following the U.S. Department of Justice's lawsuit against Alphabet (NASDAQ 🙂 in October.
Together, the actions of Google and Facebook mark the most significant monopoly cases filed in the US since the Department of Justice sued Microsoft (NASDAQ 🙂 in 1998, Bloomberg said. Unlike the Google case, Facebook's complaints are seeking a court order to split the company.
Amid these regulatory challenges, investors need to figure out whether Facebook will be a viable business in the long run. With substantial regulatory threats, Facebook is also facing limitations in how it collects data from users, such as those who use Apple (NASDAQ 🙂 products.
A recent order from European regulators that would prohibit the transfer of data from European users to the US is an example. According to the Wall Street Journal, the company has appealed that decision.
"We need new regulations that allow for personalized and relevant advertising while protecting people's data and privacy," Chief Executive Mark Zuckerberg said in an October conference call with analysts. Excessive restrictions on the industry "could have a significant negative impact on small businesses and the economic recovery in 2021 and beyond," he said.
These regulatory risks aside, the company is in an enviable position to capitalize on the shift to online trading brought on by the pandemic. The company's operating margin was 37% at the end of the third quarter, a figure many Wall Street executives can only dream of. The number of people using Facebook products every month, including Instagram, Messenger and WhatsApp, has risen to 3.21 billion from 2.82 billion a year ago.
Bottom Line
Despite the negative publicity, Facebook stock holds up. This shows the underlying strength of the company's business and its strong competitive edge. Given that a fair amount of regulatory risk is already built into the stocks, we find FB an attractive choice for long-term investors who have the stomach to tolerate the regulatory measures that could take years to resolve.
