SAN FRANCISCO (AFP, REUTERS) - Facebook beat Wall Street expectations for both quarterly revenue and profit on Wednesday (April 28) but warned that growth later this year could "significantly" decline as new Apple Inc privacy policies will make it more difficult to target ads.
A surge in digital ad spending during the pandemic when consumers shopped online, along with higher ad prices, helped Facebook revenue surge 48 per cent. Looking ahead, the world's largest social network said it will focus on building e-commerce features to expand beyond its ad business.
Shares of Facebook rose 6.5 per cent to US$326.00 in extended trading on Wednesday.
"We have a long way to go to build out a full-featured commerce platform ... but I am very committed to getting there," Facebook chief executive Mark Zuckerberg told analysts on a conference call to discuss earnings.
Total revenue, which primarily consists of ad sales, hit US$26.17 billion in the first quarter ended March 31, beating analysts' average estimate of US$23.67 billion, according to IBES data from Refinitiv.
The digital advertising industry has boomed during the pandemic, benefiting Facebook and others including Google, whose parent company Alphabet Inc reported record quarterly profit on Tuesday.
"Despite several headwinds - such as ongoing antitrust scrutiny, lingering privacy concerns, as well as looming changes which could negatively impact its advertising business - Facebook delivered another blockbuster quarter," said Jesse Cohen, senior analyst at Investing.com.
Mr Zuckerberg said the company plans to focus on three key areas: building augmented and virtual reality, e-commerce features and helping content creators earn money on Facebook's platforms.
Monthly active users on Facebook rose 10 per cent to 2.85 billion.
Net income for the first quarter came in at US$9.5 billion, or US$3.30 per share, compared with US$4.9 billion, or US$1.71 per share, a year earlier. Analysts had expected a profit of US$2.37 per share.
Its stellar earnings came as regulators in the United States and abroad threaten to crack down on Internet giants they fear have become too powerful.
Facebook, Google, Amazon, and Apple are among tech titans that have thrived as the pandemic accelerated a shift to working, learning, shopping and socializing online.
Facebook warned that it expects "increased ad targeting headwinds" this year from regulation as well as privacy changes made in the latest version of operating system running Apple mobile devices.
Apple Privacy Battle
An update to iOS software powering some billion iPhones around the world kicked in this week with an enhanced privacy feature critics fear will roil the internet advertising world.
Apple began requiring app makers to tell users what tracking information they want to gather and get permission to do so, displaying what have been referred to as "privacy nutrition labels."
The move by Apple, which has been in the works for months, has sparked a major rift with Facebook and other tech rivals and could have major implications for data privacy and the mobile ecosystem.
Digital ads are the lifeblood of internet giants such as Google and Facebook, and are credited with paying for the cornucopia of free online content and services.
An update to the iOS software that powers iPhone, iPad, and iPod devices brings with it an "App Tracking Transparency framework" that stops apps from tracking users or accessing device identifying information without permission.
With more than a billion iOS powered devices in active use around the world, a change to the mobile operating system that potentially hampers the effectiveness of digital ads could be significant.
Platforms such as Facebook or Google that rely on advertising typically get paid only when someone takes an action such as clicking on a marketing message.
Ads made irrelevant because less is known about users could mean fewer clicks and, by extension, less revenue.