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.
Image source: Getty Images.
Before we look at what to expect from these metrics in Q4, here's how each metric played out in Q3.
| Metric | Q3 2017 Revenue | Q3 2016 Revenue | Year-Over-Year Growth |
|---|---|---|---|
| Revenue | $10.1 billion | $6.8 billion | 47% |
| Operating expenses | $5.2 billion | $3.9 billion | 34% |
| Monthly active users | 2.07 billion | 1.79 billion | 16% |
| Daily active users | 1.37 billion | 1.18 billion | 16% |
Data source: Facebook's quarterly earnings releases. Table by author.
Revenue
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.
Operating expenses
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%.