Facebook, Inc. Earnings: What to Watch

By Daniel Sparks Markets Fool.com

Facebook (NASDAQ: FB) is set to report its financial results for its first quarter on Wednesday, May 3.As the company hits new all-time highs in the days leading up to the release, investors seem to be betting that Facebook's business can keep up its strong growth trajectory.

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When Facebook reports its first-quarter results, here are the key areas to watch. But first, here's a quick look back at how Facebook performed in the same quarter last year.

Facebook's year-ago quarter

Metric

Q1 2016

Q1 2015

Change (YOY)

Revenue

$5,382 million

$3,543 million

52%

Operating margin

37%

26%

1,100 basis points

Net income

$1,510 million

$512 million

195%

EPS

$0.52

$0.18

189%

Revenue growth

Facebook's revenue growth during the quarter will be key. It's only a matter of time before the incredible 54% year-over-year revenue growth Facebook served investors in 2016 begins decelerating. Revenue growth like this simply isn't sustainable. It's no wonder management has warned investors during recent earnings that it expects revenue growth to come down as it begins to lap strong revenue growth rates achieved in year-ago quarters.

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Unsurprisingly, analysts are expecting a deceleration in Facebook's revenue in Q1. On average, analysts expect Facebook to report revenue of $7.83 billion, up about 45% year over year. This expected rate would be down from Facebook's 54% full-year revenue growth in 2016 and lower than its 52% year-over-year growth in the fourth quarter of 2016.

User growth

It's impressive to watch as the total monthly active user count of the world's largest social networkcontinues surging higher. In Facebook's most recent quarter, monthly active users hit an all-time high of 1.86 billion, up an incredible 17% year over year -- a huge jump considering how big Facebook's user base is.

Perhaps even more notable is the growth that Facebook is seeing in its daily active users. Daily active users in Facebook's most recent quarter increased 18% year over year, to a whopping 1.23 billion.

Investors may want to turn their attention to Facebook's growth rate for both its monthly active users and daily active users when the company reports first-quarter results. Given the high expectations priced into Facebook stock, investors should look for user growth to be similar to the rates achieved last quarter.

Image source: Facebook.

Instagram and messaging

While the core Facebook app represents the bulk of Facebook's financial performance, some of the company's bets outside of its native social network could begin paying off handsomely soon -- namely, Instagram and Facebook's two messaging apps, WhatsApp and Messenger.

After announcing some new major milestones for their monthly active user counts, Instagram and Messenger have both been in the spotlight recently. Facebook recently said Instagram has grown to 700 million monthly active users, up from 600 million in December. The service's accelerating growth recently has it well on its way to hitting 1 billion users. Facebook also said in April that Messenger now has 1.2 billion monthly active users, up from 1 billion last summer.And investors shouldn't overlook Facebook's 2014-acquired WhatsApp, which now has 1.2 billion monthly active users.

Investors should look for updates on management's plans for these platforms in 2017. As these other services grow, Facebook will increasingly look to monetize them. While Instagram is further along in Facebook's monetization efforts for the platform, Facebook is still experimenting with the best ways to monetize its messaging apps.

Facebook reports first-quarter results after market close on Wednesday, May 3. The company will also host a live conference call to discuss results at 2:00 p.m. PST. Stay tuned at The Motley Fool for analysis of the quarter's results.

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Daniel Sparks owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.