Mark Zuckerberg

Photo credit: Martin E. Klimek-USA TODAY

Mark Zuckerberg faces Wall Street for first time since data scandal

April 25, 2018 - 11:21 am

Seth Fiegerman

(CNN Money) -- Mark Zuckerberg is about to face Wall Street for the first time since the Cambridge Analytical data scandal.

Much is at stake. GBH Insights analyst Daniel Ives in a research note Friday called this Facebook earnings report a "pivotal barometer" for investors. It will be a "key step for investors to either boost their confidence in the Facebook story going forward or raise further red flags," he wrote.

The consensus estimate among analysts is for Facebook's sales for the first three months of 2018 to hit $11.4 billion, up more than 40% from the same period a year earlier. Its profit is expected to climb nearly 30% to $1.35 a share.

But that only tells part of the story.

Analysts are concerned about how much an ongoing backlash among users, advertisers and politicians on both sides of the Atlantic could slow down a company once viewed as unstoppable.

Cambridge Analytica, a data firm with ties to President Donald Trump's campaign, accessed information from as many as 87 million Facebook users without their knowledge. The data debacle came to light late in the quarter, meaning the impact may be felt more in the quarters to come.

Case in point: Google and Twitter both showed ads sales strength in their first quarter earnings results this week, despite being among the companies most likely to face scrutiny over data practices.

In what could be a preview of the grilling Zuckerberg can expect, Twitter executives fielded multiple questions from analysts early Wednesday about the impact that the global data privacy awakening could have on its business.

One analyst asked about the potential revenue impact of sweeping new European data protections set to go into effect next month. Twitter CFO Ned Segal said: "It's too early to predict the impact that regulation is going to have on the business."

Twitter and Facebook have both announced updates to their privacy policies in recent days to prepare for the new European law, called the General Data Protection Regulation (GDPR).

Brian Wieser, an analyst with Pivotal Research, predicts there will be "an ongoing erosion of usage throughout 2018" due to "reduced trust" and "increasing awareness of toxicity of the platform," among other factors. He also expects marketers to rethink the upsides of advertising on Facebook because of the potential privacy concerns from consumers.

Several companies, including Sonos, Commerzbank and Mozilla, pulled their advertisements off Facebook after the data issue first came to light.

Ives thinks the "worst case scenario" is that as much as $2 billion in ad sales could be "at risk" for the company this year.

So far, Facebook executives have played down concerns. Zuckerberg said an online campaign to delete Facebook has not had a "material impact" on the company. Facebook Chief Operating Officer Sheryl Sandberg said only a "few" marketers have paused their advertising on the platform.

Expect them to be grilled about both points on the earnings call — as well as how much Facebook is spending to make things right.

Zuckerberg has said Facebook will conduct a costly audit of thousands of third-party applications and hire more security and content-review staff. The cure could end up being worse than the disease — at least for Facebook's bottom line.

The-CNN-Wire ™ & © 2018 Cable News Network, Inc., a Time Warner Company. All rights reserved.