Facebook had a strong fourth quarter last year
In Part 1 of this series, we learned that although Facebook, Inc. (FB) continues to grow its revenues at a healthy rate, the revenue growth outlook for 4Q14 disappointed investors. Facebook’s revenues grew by 59% in 3Q14, but the company expects this growth to slow down to around 44% in the next quarter.
The point you need to note is that Facebook had a robust 4Q13 because of its main ad business, News Feed. Management said 4Q13 was great because Facebook fully rolled out ads in news feeds. In this sense, it’s difficult to compare 4Q14.
The other point you need to note is that technology sector in general is facing headwinds because the U.S. dollar is strengthening. Facebook earned about 54% of its revenues from international markets in the last quarter. As a result, a strengthening U.S. dollar impacts its revenues and margins. We saw how such a scenario impacted Apple Inc (AAPL) and eBay, Inc (EBAY) in Market Realist’s articles, Why Apple had strong earnings despite currency headwinds and Must-know: Why a stronger US dollar affects eBay.
Facebook still showing decent revenue growth
Despite the slowdown in revenue growth, Facebook is still expected to show decent revenue growth compared to its other social network peers in 4Q14. As the chart above shows, it’s expected LinkedIn Corporation (LNKD) will grow its revenues by 35%, while Twitter Inc’s (TWTR) could grow at 72% in the next quarter. Twitter actually increased its guidance for the fourth quarter recently. For more on this, read Why did Twitter increase its guidance for 4th quarter 2014?