Next week, social network Facebook (NASDAQ: FB) will be put to the test when it reports its results for its fourth quarter. With trailing-12-month revenue and earnings per share soaring an incredible 48% and 91% year over year, investors have come to expect impressive quarterly financial results from the company. But there are several headwinds that could slow growth in both of these metrics during 2018.
Facebook's fourth-quarter revenue, operating expense, and user growth encapsulate some of the most important areas for investors to check in on next week. Trends in these metrics will provide insight into Facebook's business and preview what to expect from the social network this year.
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Before we look at what to expect from these metrics in Q4, here's how each metric played out in Q3.
Facebook has been on a roll when it comes to revenue growth. In the company's third quarter, the social network's year-over-year revenue growth rate actually accelerated, rising from 45% in Q2 to 47% in Q3. This happened despite warnings from management that revenue growth could slow in the second half of 2017 as ad load growth in the News Feed tapered off.
Even though Facebook's revenue growth didn't decelerate as expected in Q3, investors shouldn't forget management's repeated warnings about how the declining impact of ad load growth on revenue should lead to slower overall revenue growth in the second half of 2017. This forecast may have played out in Q4.
Investors should look for Facebook's fourth-quarter revenue to rise 42% to 44% year over year -- still a strong rate, but notably lower than the company's 47% year-over-year revenue growth in Q3.
Though Facebook's operating expenses have been growing rapidly, this trend is easy to overlook since revenue is growing at an even faster rate. However, there's a good reason to keep an eye on Facebook's operating expense growth: While management has warned of the possibility of slower revenue growth, there's no indication that operating expense growth will slow in the near future.
Indeed, looking ahead to 2018, Facebook expects operating expenses to rise 45% to 60% year over year, a huge jump compared to management's forecast for full-year 2017 operating expense growth of 35% to 40%.
Though management's timeframe for 45% to 60% operating expense growth isn't until 2018, investors shouldn't be surprised if Facebook's operating expense growth begins moving in this direction in Q4.
Facebook has benefited from consistently strong user growth since its inception, and the social network's third quarter was no exception. Monthly and daily active users both climbed 16% year over year to 2.07 billion and 1.37 billion, respectively. Look for similar growth rates in Facebook's user base in Q4.
Investors may also want to look for updates on the users on Facebook's other social networks. As of Facebook's most recent updates on its other platforms, messaging apps WhatsApp and Messenger each had 1.3 monthly active users, and Instagram had 800 million monthly active users.
In addition to all of these metrics for Q4, investors should look for any updated guidance for what to expect from these metrics in 2018.
Facebook reports its fourth-quarter results on Jan. 31 after market close.
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