Facebook, Inc. Q1 Earnings: Can It Live Up to Its Huge Fourth Quarter?

By Markets Fool.com

Facebook's fourth quarter was huge. In response to the company's higher-than-expected fourth-quarter revenue growth, and Facebook's meaty $2.1 billion in free cash flow, shares soared 16% during the trading day following the quarterly report. Can the social network impress investors again when it reports first-quarter results later this month?

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Facebook CEO Mark Zuckerberg. Image source: Facebook.

Putting Q1 expectations into context
What can investors expect from Facebook when the company reports first-quarter results on April 27?

To give Q1 some context, let's first look back. Here's what happened in Facebook's fourth quarter.

Revenue Growth (YOY)

Non-GAAP EPS Growth (YOY)

Monthly Active User Growth (Sequential)

52%

49%

3%

Data source: Author.

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Looking back to Q1, the theme that really stood out about the quarter was the company's sharp acceleration in year-over-year revenue. Facebook's 52% year-over-year revenue growth during Q4 was a huge jump from the 41% growth in Q3. And it's worth noting that the social network's 41% year-over-year revenue growth in Q3 wasn't an unusually low figure by any means; indeed, Q3 growth was actually a notable acceleration from the 39% year-over-year growth in Q2.

With such a notable acceleration in Facebook's year-over-year revenue growth between Q3 and Q4, the pressure is on for the company's growth rate in Q1. On average, analysts are expecting the company to grow revenue about 48% during the current quarter -- below the company's year-over-year growth in Q4, but well above its growth in Q3.

As usual, investors will also check in on the company's profitability. Facebook's 49% year-over-year growth in non-GAAP EPS was surprising last quarter, as Facebook CFO David Wehner has emphasized that Facebook is investing heavily in growth initiatives. Even its GAAP EPS grew even faster than its non-GAAP EPS in Q4, up 116% compared to the year-ago quarter.

With Facebook spending as aggressively as it is, it's going to remain difficult for non-GAAP EPS growth to catch up to revenue growth. Indeed, on average, analysts expect non-GAAP EPS of $0.62 in Q1 -- up 47% growth from the year-ago quarter, or a growth rate slightly behind what analysts are expecting for revenue during the same period.

As usual, another area worth checking in on will be the company's monthly active user growth. Growing in the range of 3% and 4% sequentially every quarter since the second quarter of 2013, investors will look for the company to maintain growth in this range for Q1. To achieve 3% or greater sequential growth in monthly active users in Q1, the company will need to report about 1,639 million monthly active users.

The bottom line
To summarize, here's what to look for from Facebook in Q1.

Revenue Growth (YOY)*

Non-GAAP EPS Growth (YOY)*

Monthly Active User Growth (Sequential)

48%

47%

3%

Asterisk indicates consensus analyst estimate. Figures without asterisks represent author estimate. Data source: Author.

Other narratives worth checking on when the company reports results will be any commentary on user engagement, as well as progress in developing Instagram, Messenger, WhatsApp, Groups, and Oculus into significant businesses in their own right.

The company reports first-quarter results after market close on Wednesday, April 27. Beyond checking in on the financial report, investors can get more information on the company by tuning into the company's earnings call, which will begin at 2:00 p.m. PT on the same day. Investors will be able to find a link to the report and the call on Facebook's investor relations page.

The article Facebook, Inc. Q1 Earnings: Can It Live Up to Its Huge Fourth Quarter? originally appeared on Fool.com.

Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.