The social-media company has been grappling with a number of headwinds, including a data breach and privacy concerns. Such scandals spurred a user revolt, although it continues to count billions of monthly active users across its platforms.
Facebook has warned that higher spending and other initiatives to protect user privacy will slow its growth. Goldman Sachs analyst Heather Bellini expects engagement to decline "slightly" in the fourth quarter, "as management has pointed to intentional changes that can negatively impact time spent on the platform." However, she affirmed her buy rating and wrote that Instagram and Stories could drive upside to estimates.
The stock has essentially traded sideways since its third-quarter results in October, and it remains more than 30 percent below a July record despite expectations for revenue growth above 20 percent. The average analyst price target is $184, or nearly 30 percent above Facebook's Tuesday closing price.
Options activity is pointing to a volatile reaction to the earnings release, but the direction is cloudy as contracts expiring on Friday are fairly balanced between calls and puts. The at-the-money straddle is pricing in a 7.5 percent share move in the trading session after the report, larger than the 5.3 percent average over the last eight releases.
Just 7 percent of total open interest is scheduled to expire at the end of the week, and with current implied volatility levels at 103 percent versus a 3-month average of 40, traders may be hesitant to pay over two times the average volatility into the forth quarter results.
Mark Kelley, an analyst at Nomura Instinet who has a neutral rating on the stock, called Facebook "one of the more controversial stocks in our coverage (unsurprisingly)," with both bulls and bears able to point to elements that justify their thesis.
Signs that Facebook users continue to be active on the platform — or engaging on Instagram or its Stories function — could be taken as a sign that the worst is over for the stock, even as the company struggles to rebuild its reputation. Barclays recently suggested that the key metrics of daily and monthly active users could surprise to the upside, while both Baird and JPMorgan said engagement trends were stabilizing. JPMorgan also named Facebook one of its " 2019 Best Ideas" earlier this month.
Wall Street is expecting roughly 2.32 billion monthly active users, according to to data compiled by Bloomberg, which represents modest growth from the previous quarter's 2.27 billion.
"The company's unmatched scale, ease of use, and breadth of ad inventory suggest that Facebook will continue to represent a core part of digital advertiser budgets in the U.S. and around the world," wrote analyst Michael Pachter of Wedbush. He added that revenue should remain "robust" and "supported by multiple growth drivers," even though growth was decelerating.
