Investors will be closely paying attention to the recovery of Facebook’s ad business when the company reports its third quarter earnings results tomorrow at 6 PM ET, but evidence of an ad revenue rebound alone shouldn’t be satisfying.
For one, Facebook reporting an ad rebound in the quarter wouldn’t be all too surprising. Snap’s Q3 global revenue (most of which is derived from advertising) was up about 52% year-over-year and 50% from Q2, for example. Meanwhile, Omnicom (one of the world’s largest ad-holding companies) on Tuesday showed signs that its ad revenue business took a smaller hit from COVID-19 in Q3 when compared with Q2.
That makes sense when considering ad demand improved more during Q3 than in Q2 among advertiser and agency execs tracked by Pivotal Research Group.
Second, investors should look for updates on how Facebook is faring on satisfying the group that’s increasingly looking to have a hand in how it operates: lawmakers.
It’s hard to forget the mammoth report the House antitrust subcommittee released earlier this month that, among other things, recommended “structural separations” of “dominant online platforms.”
Facebook is also testifying today before Congress in a hearing concerning possible changes to Section 230, which helps protect online platforms from lawsuits over content moderation decisions.
And of course, with Nov. 3 quickly approaching, Capitol Hill is constantly praying that Facebook is on the watch for bad actors to stamp out any election-meddling campaigns like those that surfaced years ago.
Facebook is likely to address at least some progress it’s made in positively influencing the election (such as how it helped over 4 million register to vote). That could be a good thing for investors: Appearing as a more trustworthy platform to discuss and view election-related content could boost engagement on Facebook at a time when it appears to be losing some of its younger users to rival social platforms.
Facebook has also recently banned all Qanon accounts from its platform in its fight against misinformation and content that could lead to violence. Perhaps tomorrow it may share some metrics on the number of harmful or misleading election-related pages it has taken down.
The other two issues (antitrust and Section 230) may not be addressed as directly. “Antitrust” was mentioned twice by Mark Zuckerberg during its Q3 2019 earnings, which followed that summer’s reports that the FTC and state attorneys general were investigating Facebook for antitrust reasons.
But any information on how Facebook is dealing with its current government scrutiny woes, or even any insights gained from any recent conversations with Democratic lawmakers who want to break it up, could be helpful for long-term Facebook investors (which would have less incentive to be long-term on the stock if it no longer controlled the billion plus user-hosting Instagram).
Still, even if that doesn’t come from Zuckerberg tomorrow, more information on the regulation front could come in Facebook’s Q4 2020 earnings call in early 2021, when the election results are known. A Biden presidency would suggest harsher regulation against Facebook and big tech.
The odd thing ahead of tomorrow is that Facebook beating expectations could almost be a double-edged sword for the company. While coming ahead of revenue ($19.8 billion) and MAU expectations (2.71 billion for Facebook and Messenger) is surely a plus for investors, getting bigger is something that could just further irk regulators who already think it holds too much power.