Facebook shares stung by slow user, sales growth

NEW YORK (REUTERS) - Facebook on Tuesday (Oct 30) beat analysts' profit estimates but missed targets for growing monthly users and reported its slowest revenue growth in about six years.

The social network is keeping costs in check better than some investors anticipated but is facing challenges growing users, causing shares to swing in both directions after the third-quarter results.

Shares of Facebook were up about 3 per cent to US$146.22 after initially falling as much as 5 per cent following the bell, when they had closed up 2.9 per cent at US$146.22.

Big winners on Wall Street in recent years, Internet giants including Facebook, Amazon.com and Google parent Alphabet have suffered a battering over the last month.

Slowing growth after years of strong results has been a top concern, and Facebook's weak results underscored some of those fears.

Still, the company had warned its profit and revenue growth could be the slowest in years. Facebook's spending has ballooned as it tries to fortify itself against fraudsters and hackers, and as it invests in more engaging content such as video.

Emerging businesses Instagram and WhatsApp also have yet to pick up the slack from flattening usage of Facebook.

Overall third-quarter revenue was US$13.73 billion (S$18.9 billion), up 33 per cent from the same period last year and below the US$13.78 billion average analyst estimate in Refinitiv data.

Facebook said ad sales were affected by unfavorable foreign exchange rates.

Quarterly profit of US$5.14 billion, or US$1.76 per share, was up 9 per cent from the same period last year and above the average per-share estimate of US$1.48.

As Facebook user growth has tapered off, its ad sales had continued to surge as it found ways to better target ads to draw clicks and views.

With the trend wearing off and the company both tweaking its services and spending more to rehabilitate its image among consumers, the company warned in July that revenue and operating margin would grow slower than they have in years.

Total expenses in the third quarter surged to US$7.95 billion, up 53 per cent compared with a year ago.

Its reputation has suffered from a data breach affecting 29 million users in September and a privacy scandal involving a British political consulting firm in March.

It also has been rocked by domestic and international information warfare on its services, including WhatsApp and Instagram, and a wave of executive departures.

Still, the company has managed to gain some users. The company said 2.6 billion users interact with at least one of its apps each month, up from 2.5 billion when it released the figure for the first time last quarter to emphasise that its potential audience for advertisers is unrivaled in size.

Monthly and daily users of the main Facebook app compared with last quarter were up 10 per cent to 2.27 billion and up 9 per cent to 1.49 billion, respectively. Estimates were for 2.292 billion and 1.508 billion, according to Refinitiv averages.

A few financial analysts are concerned that the company's operational problems are so vast that costs will continue to rise out of sync with revenue.

The company's weakest quarterly sales growth as a publicly traded company, 32.2 per cent, came in each of its first two reporting quarters in 2012.

"The fact that problems keep emerging reinforces our view that the company is not as in control of its business as it needs to be," Pivotal Research senior analyst Brian Wieser told clients in an email this month.

Facebook suffered the biggest one-day wipeout in U.S. stock market history after issuing the grim guidance in July, with shares falling almost 19 percent.

It continues to trade at a discount to peers. Shares of No. 1 online ad seller Alphabet Inc, for instance, are priced at 22.4 times expected earnings over the next 12 months, compared to 17.6 times for Facebook.