Social Pressure: As Facebook Reports Q4, It's Revenue Growth vs. Regulatory Risk

As social media giant Facebook prepares to release and discuss Q4 and full-year earnings for 2020, analysts may be weighing solid ad revenue growth versus possible regulatory actions. holding phone and Facebook reaction emojis: Facebook earnings
5 min read
Photo by Getty Images

Key Takeaways

  • Analyst consensus expectations looking at solid Q4 FB ad revenue growth
  • Could future revenues be dampened by harsher regulations?
  • Liability concerns, antitrust issues both in forefront as earnings approach

Despite an ad boycott, Congressional hearings, and a swirl of controversies, Facebook (FB) shares hit record highs last year as people hunkered down during the pandemic and used social media to keep in touch. 

The question is, can the social behemoth keep the momentum going despite expected headwinds from threats of antitrust lawsuits, new privacy rules, and discontinued immunity against what users post? 

Look for a fresh set of numbers and guidance along with potential observations about the regulatory climate when FB reports earnings Wednesday afternoon.

A Good Year for Revenue

FB shares were up 27.4% over the past year, easily outperforming the 16% increase of the S&P 500 Index (SPX), thanks in large part to steady user growth across all regions, particularly Asia Pacific. Instagram and WhatsApp usage also grew in 2020.

Q3 earnings blew away estimates. Ad revenue—FB’s primary revenue source—came in at $21.5 billion, or 41.9% higher than analyst consensus estimates. Though FB didn’t provide an outlook for Q4 2020, it noted in its Q3 earnings report that it anticipates, “fourth quarter 2020 year-over-year ad revenue growth rate to be higher than reported third quarter 2020 rate.”

Since August—when the stock hit an all-time high of $304—the price has meandered downward, though it’s still above its September low of about $248 (see figure 1 below). Analysts’ average Q4 earnings per share forecast is $3.21, compared with $2.56 a year ago, according to Thomson Reuters data.

FIGURE 1: POSTING OUTPERFORMANCE. Shares of Facebook (FB—candlestick) rocketed to new highs last summer but have since pulled back. Still, shares of the social network have kept ahead of the broader S&P 500 Index (SPX—purple line). Data sources: Nasdaq, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Playing Monopoly?

Hanging over FB—and other Big Tech firms—is the growing threat of antitrust lawsuits. The Justice Department, Federal Trade Commission (FTC) and state attorneys general filed five lawsuits against FB late last year, accusing it of abusing its dominance in the digital marketplace and engaging in anti-competitive behavior.

FB is alleged to be using its position with more than 2.5 billion users to an unfair advantage against real or potential competitors by either buying them out or by flexing its muscles as market leader. Allegations also include putting consumer data at risk, reducing the quality of consumers’ choices, and unfairly increasing the price of advertising.

Some officials have called for two of the biggest apps in FB’s social media empire—WhatsApp and Instagram—to be spun off into separate companies. FB has denied any wrongdoing.

Unclear is what the Biden administration might do. Alternatives could include expanding the lawsuits, litigating as is or settling. Copycat lawsuits by private parties also are reportedly piling up, adding to FB’s woes.

If the scenario sounds a bit familiar, that’s because the Justice Department filed a landmark lawsuit against Microsoft (MSFT) in 1998. As you might recall, it took almost two years to reach a verdict. A settlement was reached that placed several restrictions on how the company sells and licenses its products. Could something similar be ahead for FB? We’ll have to wait and see.

A Shield from Liability

Another big threat to FB’s dominance is an effort to reconsider Section 230 of the Communications Decency Act, the 1996 law that gives internet companies sweeping immunity for hosting as well as moderating users’ posts. As a result, FB and other social media firms generally aren’t liable for what’s posted on their platforms.

Expect politics to play a role in how this plays out. Some say the Decency Act has been used by Tech companies to censor conservative opinions and so support rewriting Section 230. Some Republicans also claim that tech companies are shifting further to the left to appease Democrats who now hold more power in Washington. They point to FB indefinitely suspending then-President Trump, citing his role in fanning violence. Twitter (TWTR) recently announced a lifetime suspension for the ex-president. 

Meanwhile, some legislators say they’re looking for more aggressive content moderation. They say misinformation about the election results were spread on social media platforms for too long before action was taken to delete them. They also question if the removal of thousands of fake accounts has been sufficient or too little, too late.

FB and other tech companies have said they consider immunity to be fundamental to running their platforms. FB’s earnings call gives investors a chance to hear executives’ latest thoughts on these threats to the business and how the company might counter them.

Privacy Matters

New privacy rules on how user data is used could also emerge. Politicians apparently haven’t forgotten about the 2019 scandal when political consultancy firm Cambridge Analytica improperly obtained the data of up to 87 million Facebook users. The Federal Trade Commission (FTC) threw a $5 billion fine at FB, believed to be the biggest ever imposed on any company for violating consumers’ privacy.

Concerns about collecting personal data of FB users for potential illicit use haven’t gone away, but so far there’s no imminent solution or consensus on how to approach the matter either.

FB has updated its privacy policies for Facebook and WhatsApp, and the latter met with mass confusion in January 2021 about how and what data would be shared.

This is a still-unfolding chapter in the life of FB. Regulatory risk is a factor to consider for pretty much any company, but it’s certainly elevated for FB as it heads into 2021.

Good Trading,

Helpful Educational Content and Programming

    • Check out all of our upcoming webcasts or watch one of the many archived ones, covering a wide range of topics from market commentary to portfolio planning basics to trading strategies for active investors. No matter your experience level, there’s something for everybody.
    • Looking to stay on top of the markets? Check out the TD Ameritrade Network, which is live programming that brings you market news and helps you hone your trading knowledge. And for the day’s hottest happenings, delivered right to your inbox, you can now subscribe to the daily Market Minute newsletter here.

    TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer.


    Key Takeaways

    • Analyst consensus expectations looking at solid Q4 FB ad revenue growth
    • Could future revenues be dampened by harsher regulations?
    • Liability concerns, antitrust issues both in forefront as earnings approach

    Related Videos

    Call Us

    Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

    Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

    Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

    TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.

    Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.


    Market volatility, volume, and system availability may delay account access and trade executions.

    Past performance of a security or strategy does not guarantee future results or success.

    Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

    Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

    This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

    TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2021 Charles Schwab & Co. Inc. All rights reserved.

    Scroll to Top