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Facebook's Ad Machine to Power Growth; Antitrust, Content Issues Are in Focus

01/27/2021 | 09:14am

By Sarah E. Needleman

Facebook Inc. is expected to post record revenue for the fourth quarter as holiday shopping and increased use during the pandemic are seen by analysts as driving a surge in digital-ad spending.

The social-media giant's earnings report, due Wednesday afternoon, should reflect an increase in advertisers' efforts to reach consumers who have been doing more of their shopping online in response to the health crisis. Analysts forecast Facebook to post revenue of $26.36 billion, according to FactSet, up from $21.08 billion in the final quarter of 2019. Facebook's profit is projected to rise 25% to $9.2 billion, or $3.19 a share.

Still, the parent of Facebook, Instagram and WhatsApp is grappling with challenges that could pose problems going forward.

Last month the Federal Trade Commission and 46 states filed antitrust lawsuits against Facebook, accusing the company of buying and freezing out small startups to choke competition. Facebook has disputed claims presented in the lawsuits, describing them as revisionist history and defended its acquisitions as good for competition, advertisers and consumers.

The company is also under fire over its decision to indefinitely ban former President Donald Trump from Facebook and Instagram after he made posts encouraging protests at the U.S. Capitol that led to a deadly riot. It recently referred the matter to an independent committee to determine whether Mr. Trump should be allowed back.

Facebook's stock has gained less than 2% over the past three months, compared with a roughly 20% gain in the Nasdaq Composite Index.

On Wednesday, analysts will be looking for signs of Facebook's progress to expand its business beyond advertising in areas such as e-commerce and virtual reality.

Facebook's foray into e-commerce could yield big benefits in the long run, analysts say. Instagram Shopping and Reels and Facebook Marketplace could be responsible for $3 billion of additional revenue for the company this year, according to a recent note from Morgan Stanley. The note cited a survey that found about a third of Americans use Shopping and Reels monthly while more than half use Marketplace.

Facebook will be the first U.S. social-media company to report earnings for the most recent season. Snap Inc. and Twitter Inc., which also deactivated Mr. Trump's accounts, are scheduled to release their quarterly financial reports next month. With all three, analysts will be looking for indications of whether banning the former president has reduced user engagement, though early data from analytics firms show no substantial changes in daily users or time spent on the platforms' websites and apps.

Analysts expect Facebook, which ended the third quarter with 1.82 billion daily users and 2.74 billion monthly users, to have continued growing its user base in the closing months of 2020.

In the third quarter, Facebook's user numbers grew in every market except in the U.S. and Canada, where the number of daily and monthly users declined from the second quarter. The company had warned that users would likely spend less time on the platform as coronavirus restrictions were lifted.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

(END) Dow Jones Newswires

01-27-21 0914ET

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