By Jackie Wattles and Reena Ninan, CNNMoney
Wall Street Journal
Facebook’s initial public offering begins this week.
But analysts say the social network’s financial filings are just as important as the document outlining its business model.
Hint: The company is facing more regulation and scrutiny in 2018 than it has in years, something that Facebook’s public filings will highlight.
The document is seen as the best roadmap to see how Facebook makes money in an ever-changing and competitive market.
In the 24 months since Facebook’s last earnings release, the company has grown to cover two-thirds of the world’s population and serves up 2 billion active users on at least one device daily.
And it faces more competition from rivals like Snapchat, WhatsApp and Twitter. The company’s user growth has slowed in the US and Europe.
Facebook’s filing this week could offer some clues about how the company is shifting its business.
Randy Nelson, senior analyst at research firm eMarketer, said its 2018 numbers may reflect how marketers are shifting ad spending into Facebook pages, which are directly linked to the company’s main site.
“They may even say that these efforts are making Facebook more profitable,” Nelson said.
The filing could also show how the company has been preparing itself for the departure of Facebook founder and CEO Mark Zuckerberg, Nelson said.
“Last year, we did see Facebook promote Sheryl Sandberg,” Nelson said. “It’s clear they have been watching her rise and they are watching for signs that someone else can take over.”
News that Zuckerberg could step down as CEO by the end of 2019 was first reported in the Wall Street Journal.
Filing is “journalism”
How investors react to the filing this week could also reveal what they think about Zuckerberg’s possible successor.
When the stock market opened Thursday, the key question — one that many investors would probably like to have an answer to — was what the future holds for Facebook.
“When there’s a big filing, it’s journalism, and it’s like, get the heck out of here,” said Nick Peters, co-founder of equity research firm Smead Capital Management.
He said it is “highly likely” that the massive filing will be released Monday.
“You just want people to be comfortable with your business, and this filing is the key step to that,” Peters said.
Peters said investors may want to take a close look at the company’s logo, which may appear more capitalized and long than in previous filings. He said he is expecting to see the word “we” more prominently on the filing.
“We will also find out if the company’s gene-buster drug breakthrough is a part of the filing,” Peters said.
Time will tell
There’s another issue on the line this week: There’s been a sudden flurry of talk about the risks of investing in companies like Facebook, even as many Wall Street analysts view the social network as a “buy.”
Those comments have come amid increased media coverage of Russian interference in the 2016 presidential election and questions over the company’s lackluster response to the issue.
One problem analysts cite: Facebook is still not profitable.
Its IPO filing may provide clues about how the company is turning that around. Peters said it could boost its stock price, as long as the company doesn’t make any big mistakes.
“If the filing is pretty rosy and the company doesn’t miss any major numbers, there will probably be some upside,” Peters said.
“When you have a change in leadership, especially from someone as visible as Zuckerberg, investors want to see people stepping up and making sure the business is doing well,” he added.