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Facebook Earnings Preview: Three Things to Watch After Cambridge Analytica Scandal

Will the social network lose users in the U.S. for the second straight quarter?

Can Facebook — despite concerns over waning user enthusiasm and its protection of data — post another big quarter, when the social network reports its Q1 earnings on Wednesday afternoon?

The social network’s business looked to be extremely strong back in January, with the company reporting that it hauled in nearly $13 billion during the final months of 2017 — making it the 11th straight quarter Facebook had topped sales estimates. Things were getting boring. Facebook would report earnings, and they’d beat expectations, and that was that. Even after admitting it did little to block Russian trolls from hitting more than 100 million users with disinformation during the 2016 U.S. election, Facebook was still racking up users and ad dollars. Its business was Teflon.

But is that still the case? Following the revelation in March that political firm Cambridge Analytica grabbed data on up to 87 million unwitting users, the company has been publicly skewered. Outcry over how Facebook protects its 2 billion users has forced the company into issuing a mea culpa on seemingly an every-other-day basis. CEO Mark Zuckerberg testified in front of Congress earlier this month, and Facebook has tightened its restrictions on the data apps can access. It has also forced the company to tweak how advertisers can target users — potentially impacting its revenue stream.

Before the scandal, Facebook had been cruising near all-time highs on Wall Street, trading at $185 a share. It was quickly knocked down to $150 share and has since lingered around $160 a share, as investors wait to get a glimpse of the business’ health.

With the company reporting its first-quarter earnings on Wednesday, we’re about to find out how healthy it is. Here are three things to keep an eye on:

1) Lagging User Growth

Even before the Cambridge Analytica news, Facebook was grappling with an apathetic audience at home. The company reported it lost 1 million daily active users in the U.S. last quarter –falling from 185 million to 184 million DAUs. It was the first time since Facebook started reporting earnings it had lost domestic users.

Investors gave it a pass, with the company’s global growth still outpacing its U.S. decline. Facebook reported 1.4 billion international DAUs and 2.13 billion monthly active users in January. Still, two straight down quarters would be cause for concern on Wall Street.

A #DeleteFacebook movement gained momentum during the Cambridge Analytica fallout, with celebs from Will Ferrell to Elon Musk dumping their pages. Whether that foreshadowed a widespread exile remains to be seen, though. At the same time, as people were dropping the social network, Facebook’s app was sitting atop the App Store.

2) Ad Dollars

This goes hand-in-hand with its massive user base — will advertisers start jumping ship? The full impact of Cambridge Analytica, if there is one, might not show itself until Facebook reports its Q2 earnings, but the company’s ad dominance doesn’t appear in danger, yet. Analysts are still projecting Facebook will bring in $11.4 billion in revenue for the quarter.

The reason is simple: Besides Google, Facebook is the only other game in town when it comes to online advertising. Together, both companies bring in 85 percent of all new ad dollars online. “Marketers don’t have realistic options for social ads, and re-marketing is just too powerful and profitable to stop doing it,” Dennis Yu, chief technical officer of digital marketing firm BlitzMetrics, told TheWrap.

And the changes Facebook has made to its targeted ads will have a negligible impact on its sales, according to Yu.”The fact that you can no longer target black people who are 34, gay, like My Little Pony, and work at the Post Office is something people were afraid could happen, but such micro-targeting generated basically zero ad revenue for Facebook,” said Yu.

3) Instagram 

Instagram could be Facebook’s ace in the hole. If it slips on user growth for the mothership or misses on revenue or earnings, Facebook might look to divert attention by highlighting its picture-sharing app. The company has been quick to point out how fast Instagram is growing — with more than 800 million users now — but hesitant to report how much money it is pulling in from those eyeballs. This could be the time for Facebook to show off how it’s monetizing Instagram, with the app now boasting more than 2 million advertisers.