In July, after years of runaway success, Facebook suddenly seemed mortal.
The company’s stock plunged more than 20 percent after warning that it would be less profitable in the years ahead and that its user base in Europe had shrunk. That decline, combined with a series of scandals involving misinformation campaigns and ongoing privacy concerns, had darkened the tech giant's once-rosy outlook.
On Tuesday, Facebook will provide an update on those issues and the company’s core business with its third-quarter earnings report, and analysts are cautiously optimistic that the company will have good news to report.
“Facebook has been under so much pressure that anything that isn’t a total disaster will be a good news story,” Ivan Feinseth, chief investment officer at investment bank Tigress Financial Partners, said.
Facebook is expected to report third-quarter revenue of $13.8 billion, up 34 percent from the same time last year, according to analyst estimates.
That comes after a lackluster second quarter in which Facebook reported its user growth had slowed and the company seemed to have hit a wall after the toughest year in its history. The company cautioned that growth could slow and costs will rise as it invests in hiring more people and using more technology to combat its scourge of problems, ranging from fake news and harassment to privacy and security.
“The issue with Facebook is structural and with two components,” said Gene Munster, managing partner at venture capital firm Loup Ventures. “First, the concept of how sustainable is a company that makes the majority of its profits from monetizing user data?”
Secondly, “does the world need a product that people largely feel worse about themselves after using it?” Munster said. “While there’s room for these type of products, it's a battle to sustain business momentum.”
While the early estimates appear promising, Facebook will have to assuage concerns from investors about a security breach that was disclosed in September and affected around 30 million accounts.
Facebook will also likely field more criticism of its latest efforts to stop the spread of misinformation ahead of the midterms, the looming threat of regulation and questions about the future of its management team after a series of executive departures.
Wall Street analysts will also be looking closing at Facebook’s daily and monthly active users. Facebook’s monthly active users are expected to be 2.28 billion, according to Feinseth’s estimate, up 50 million from the previous quarter. Daily active users are estimated to be 1.5 billion.
“In the future, the company will face more issues around privacy and waning interest as users increasingly ask themselves what good does Facebook bring them?" said Munster.
When Mark Zuckerberg, Facebook’s chief executive officer, announced in January that Facebook would tweak its timeline to create more meaningful interactions, he also warned that it may reduce the number of minutes users spend on Facebook.
Despite the #DeleteFacebook movement, Feinseth said he believes the impact will be minimal, but also highlighted the point that no direct rival to Facebook currently exists.
“If people are cancelling their Facebook account, where else are they going? Friendster? Myspace?” he asked.
Even if the company has indeed hit a wall, Feinseth said the shot in the arm Facebook needs will come from its other apps.
“For now, they can continue to monetize their user base through the increased penetration of Messenger, Instagram and other services,” he said.
Instagram, which Facebook bought in 2012, has been a bright spot for the company, with its “Stories” feature accruing more than 400 million daily users — twice as many as Snapchat. The app has provided another way for Facebook to attract advertising dollars. However, the app has also faced heightened scrutiny for its slow removal of hateful and false content.
Shares of Facebook were trading at about $142 Tuesday morning ahead of the company’s earnings report.