As Facebook Inc., Alphabet Inc.'s Google, Twitter Inc. and Snap Inc. prepare to report quarterly earnings, analysts will be asking tough questions on data privacy and efforts to retain users, among other topics.
Ahead of Facebook's third-quarter earnings on Oct. 30, Deutsche Bank analyst Lloyd Walmsley is largely bearish on the stock, noting in a report that the company's recent data privacy concerns and lackluster results in the latest quarter could weigh on its financials.
Facebook earlier this month revealed that personal information of about 30 million users, including up to 5 million European users, was stolen in a data breach in September. Ireland's Data Protection Commission is investigating whether the security breach violated any provisions under Europe's General Data Protection Regulation, or the GDPR.
Walmsley expects "continued noise" around daily and monthly active user figures (DAU and MAU, respectively), in the third quarter as a result of the data breach and the ongoing impact of regulations in Europe. Impacted by GDPR, Facebook's European user numbers fell slightly during the second quarter.
For the June quarter, Facebook lost over $100 billion in market value after reporting slower-than-expected quarterly revenue growth and predicted similar growth deceleration for the rest of the year. Management attributed slowing growth to higher investments in security and new ad formats, including Facebook's Stories feature, which saw smaller margin than ads featured in the Facebook News Feed.
Walmsley said improvements in Stories monetization could re-accelerate revenue during the second half of 2019. He urged investors to temper expectations for the company's growth figures, saying they have been set too high.
"We remain positive on Facebook shares over the medium term but see 3Q results unlikely to be a positive catalyst, particularly unless sell-side consensus estimates come down for 2019," Walmsley wrote.
Turning to Google, which reports third-quarter earnings on Oct. 25, analysts will likely question the delay in disclosing a recent security glitch on the Google+ social platform which impacted hundreds of thousands of users.
Google said it discovered and fixed the vulnerability in March, but did not alert the public at that time since there was no evidence that any of the exposed data was misused and there was no way to determine which users were impacted.
Google has more effectively weathered recent data privacy scrutiny than its peers since the majority of its data is collected through search, which is a user-dictated feature, said Ross Rubin, founder and principal analyst at Reticle Research.
"Google is not really pursuing as aggressive a traditional social media model as other platforms and is probably the internet's best collection of anonymous user data," Rubin said in an interview.
That said, Rubin called social media Google's "waterloo," as evidenced by the shuttering of Google+, which the company said was little-used and expensive to maintain. It will be key for Google to tap into the social media realm in order to sharpen its competitive edge, Rubin said.
For Twitter, reporting Oct. 25, Barclays analyst Ross Sandler expects results to fall mostly in line with Wall Street expectations. The consensus revenue estimate for the September quarter was $699.6 million and EBITDA of $236.7 million as of Oct. 22, according to S&P Global Market Intelligence.
MAUs are likely to remain flat while DAUs should increase by the low single digits, Sandler said in a research note.
Similar to Facebook, Twitter lost nearly $7 billion in market value after reporting June quarter results that included a 1 million quarter-over-quarter drop in MAUs. Twitter executives said MAUs should drop again in the third quarter by mid-single-digit millions.
Regarding Snap, which is also reporting third-quarter earnings on Oct. 25, all eyes will be on the company's user figures.
IDC analyst Karsten Weide said it has become increasingly difficult for Snap to bolster its user base as the company faces harsh competition from Facebook's photo sharing app Instagram Inc.
During Snap's June quarter, DAUs dropped 2% from the previous quarter, down to 188 million. The DAU drop was due in part to a controversial update to Snap's namesake Snapchat platform that users said they found difficult to use.
Weide said it will be crucial for Snap to stay relevant with younger users in order to remain competitive. "The only opening that Snap has is a generational shift where it can capture users that Facebook cannot."