Facebook reports earnings after the closing bell Wednesday, and investors will be looking for signs it can shift its business to focus more on privacy while continuing to grow revenue and users.
"I believe the future of communication will increasingly shift to private, encrypted services where people can be confident what they say to each other stays secure and their messages and content won't stick around forever," Facebook CEO Mark Zuckerberg wrote in March. "This is the future I hope we will help bring about."
Zuckerberg said the company is working to integrate the messaging functions of WhatsApp, Messenger and Instagram, and that he expects "Messenger and WhatsApp to become the main ways people communicate on the Facebook network."
But many questions remain. The company has not said how long it will take for this messaging integration to get done, how expensive that shift will be or how it will monetize users' private communications.
The social media company is making the shift to privacy after enduring a barrage of privacy troubles in the last year, from the Cambridge Analytica scandal in March 2018, which revealed that a political research firm used improperly acquired Facebook user data to target political ads in 2016, to a revelation last month that company employees could have accessed passwords from hundreds of millions of users.
Facebook's advertising business has been able to weather the privacy scandals, but 74 percent of adult Facebook users in the U.S. say they have adjusted their privacy settings, taken a break from the social network or deleted the Facebook app from the phone at some point in the past year, according to a Pew Research Center survey in February.
Analysts expect Facebook to report revenue growth of 25 percent to $15 billion, from nearly $12 billion a year ago, according to estimates from Refinitiv. That would mark the slowest year-over-year growth for any quarter since Facebook's IPO in 2012. Net income is expected to decrease to $1.63 a share from $1.69 a year earlier.
"For investors, we are asking ourselves, at what cost will this transformation come? Facebook has already beefed up their security staff and will need to make more investments in data privacy," said Carter Henderson, portfolio specialist and director of institutional development at Fort Pitt Capital Group.
Already, Facebook's advertising business is going through its own major shift as the company weans itself off News Feed ads and grows the ad revenue coming from its Stories products. The company claims to have 500 million daily Instagram Stories users, and investors will want to see that those figures are still growing.
"Stories advertising has proliferated on both traditional FB and Instagram, and management is working on monetizing stories at a higher rate," Guggenheim analysts said in a note Thursday.
With Facebook adding an even broader shift to privacy into the mix, investors will want to hear from the company's leadership about how its various other bets are playing out. Any progress from the company's efforts with the monetization of WhatsApp and Messenger, sales of Oculus virtual reality headsets, the addition of an e-commerce feature to Instagram or the development of a blockchain-based Facebook cryptocurrency will be key to how investors react.
"Zuck's announcement about the company's pivot clearly shows that they will be investing in other revenue streams and business models outside of their core business," said Henry Liu, a former Facebook employee and managing partner of YGC, an enterprise blockchain investment firm. "It's important for investors to pay attention to what those things are."