On Facebook's last earnings call in October, CEO Mark Zuckerberg spoke excitedly about the company's growth opportunities in its Stories product, an important segue for investors who were focused on the disappointing revenue and user numbers.
"I just think that this is the future," Zuckerberg told analysts. "The opportunity will be even bigger because it looks like Stories will be a bigger medium than Feed has been."
Facebook is undergoing a major shift in how it generates revenue from advertisers. Instead of counting on ads sold across the site's core News Feed and the feed on Instagram, Facebook is gearing up to make more money from Stories, the user-generated photos and videos that take over an entire screen.
Investors will be eagerly awaiting an update on how well that plan is working when Facebook reports fourth-quarter results after the closing bell on Wednesday.
Analysts expect Facebook to report revenue growth of 26 percent to $16.4 billion, from $13 billion a year earlier, according to estimates compiled by Refinitiv. That would mark the slowest year-over-year growth for any quarter since Facebook's IPO in 2012. Net income likely increased to $2.19 a share from $1.44 a year earlier, when earnings were reduced by 77 cents a share due to changes in the tax code.
There will be plenty of scrutiny around Facebook's user numbers following a year of repeated privacy scandals, which pushed the stock down 26 percent and led to questions about the long-term viability for a business model that's reliant on user engagement. The number of daily active users is expected to reach 1.52 billion, up from 1.4 billion a year earlier, with monthly active users probably climbing to 2.31 billion from 2.13 billion, according to analysts surveyed by FactSet.
Average revenue per user is expected to come in at $7.11, according to FactSet, up from $6.18 a year ago.
User engagement has been sluggish in some key markets. In Europe, the company's daily user count fell for the second quarter in a row in October, while the figure in the U.S. and Canada remained flat for the third-straight quarter.
"Clients are concerned about engagement and certainly about the Instagram Stories transition," said Mizuho Securities analyst James Lee, who has a buy rating on the stock and a $200 price target. "We're probably looking at another quarter or two before this gets settled out."
Facebook shares fell 2.2 percent on Tuesday to $144.19, but bounced back by about the same percentage in early trading Wednesday. They are up 9.9 percent in January.
Borrowing a concept from rival Snap, which introduced Stories in 2013, Facebook launched its competitive version three years later. Facebook started by bringing Stories to Instagram and has since added it to its main app, Messenger and WhatsApp. Stories can focus on a photo of something your cousin sees on the street or a selfie video of a friend with animated puppy ears.
While the feature has proven especially popular on Instagram, it remains unclear just how much traction it's gained on Facebook's other apps. Zuckerberg has cautioned that the transition from Feed to Stories could be slow, telling analysts that "from a business perspective, feeds will drive the majority of our growth over the next couple of years, at least until Stories become an even bigger driver."
Maria Ripps, an analyst at Canaccord Genuity, said investors need to see if Stories is "additive to core News Feed" revenue or if it's taking money away from the main product.
"Any color around that will be the most important question this quarter," Ripps said. Canaccord has a buy rating on Facebook and a $180 price target.
At the moment, Facebook continues to lure advertisers, who can't get the type of audience the social network provides anywhere else.
"Facebook might be intrusive and sell your stuff," said Kim Forrest, a money manager at Fort Pitt Capital Group, which owns about 2,300 Facebook shares. "But apparently for advertisers it works."
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