Facebook smashed Wall Street expectations with its fourth quarter 2015 earnings report, but analysts from Deutsche Bank warn that its growth in Q1 likely won’t be as strong.
“We think investors are extrapolating that the strength from 4Q is secular vs. our view it was well above trend-line and growth rates may revert back lower,” Deutsche Bank analysts wrote in a note to investors on Monday.
Facebook’s stock was down roughly 4 per cent on Monday, though it has since recovered some ground.
Deutsche Bank expects Facebook Q1 ad revenue to increase 53% year-over-year, but that estimate is slightly below Wall Street consensus. Last quarter, its ad revenue increased by 57% year-over-year.
Despite the analysts’ caution on Q1, they still “love the long-term story,” as Facebook starts making money from Messenger and WhatsApp, and as Instagram continues to grow its ad revenue.
“We have estimated (but not yet added to our model) that Messenger and WhatsApp could reach $10B combined revenue run rate by 2020,” Deutsche Bank writes. “2015 was the Instagram revenue on-ramp, and 2016 should be the full deployment phase.”
Facebook will report its Q1 2016 earnings on April 27.