Stephen Lam/Reuters
Facebook CEO Mark Zuckerberg.
Facebook is set to announce its fourth quarter earnings on Wednesday.
The social media giant is riding an impressive five-quarter earnings and revenue-beat streak, but investors are eager to see how management plans to tide over the slowed News Feed ad growth that's coming in mid-2017.
During Facebook's Q3 earnings call, CFO Dave Wehner told investors to brace for a "meaningful" slowdown in revenue growth rates and for "aggressive" investment spending in 2017.
Those factors, combined with a series of uncovered ad measurement errors, caused Facebook shares to drop below 10% over the last few months, although shares have managed to rebound in recent weeks.
As ad growth in the News Feed begins to constrict, investors will look to Facebook's other monetization bets, like Instagram and Messenger, for signs of meaningful growth.
Looking beyond the News Feed
Instagram has benefited from aggressively copying Snapchat.
Instagram has become an increasingly important part of Facebook's ad strategy: The photo-sharing app now reaches 600 million users per month. Facebook recently started allowing ads into Instagram Stories, the Snapchat clone it rolled out last year that already has 150 million daily users.
According to eMarketer, Instagram is expected to generate $3.64 billion in worldwide ad revenue this year, a 96% increase over last year.
Facebook recently started testing News Feed-style ads in Messenger, which has one billion monthly users. The company's efforts to monetize Messenger with chat bots haven't shown meaningful results yet, so testing more traditional ads could signal a shift in strategy.
Facebook has been promoting a flashy ad campaign for live video around the world.
Aside from Instagram and Messenger, investors are paying close attention to Facebook's video efforts. The company is starting to let publishers finally monetize videos with mid-roll ads, and a recent tweak to the News Feed favors longer videos over shorter ones.
Facebook is also looking into bankrolling its own original video programming, which further signals its interest in tapping into the $70 billion world of TV ad budgets.
Another important piece of Facebook's video strategy is live video, but a recent Recode report suggests the company has decided to stop paying publishers and celebrities to broadcast. That could either signal that live video's growth is sustainable without added incentives, or that Facebook is starting to put the brakes on live video in favor of more premium, long-form video.
Facebook has positioned its other two big bets, WhatsApp and VR maker Oculus, as long term growth drivers. WhatsApp will likely roll out its chat bot platform for businesses later this year, and Oculus is working on an untethered VR headset that could help it break into the mass consumer market.
Looking ahead, eMarketer expects Facebook to generate $33.76 billion in total digital ad revenue this year, up 30.2% over 2016. 45% of that revenue is expected to come from the US.
Facebook will also come in behind Google as the second largest ad publisher in the world with 14.7% market share vs. Google's 31.7%, according to eMarketer.
The key numbers to expect
Here are the expected numbers for Facebook's Q4 earnings, based on analyst projections complied by Yahoo Finance:
- Revenue: $8.5 billion, up 46% from $5.84 billion in the year-ago period.
- EPS (adjusted): $1.31, up from $0.79 in the year-ago period.
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