Facebook's profit tops estimates, sparks share surge

Facebook easily beat Wall Street’s profit estimates when it reported earnings on Wednesday, soothing investor concerns about rising costs amid a slew of privacy-related scandals.
PHOTO: NYTIMES

Social media company's advertising business does well in face of series of privacy scandals

SAN FRANCISCO • Facebook Inc reported revenue that beat Wall Street estimates, showing the largest social media company's advertising business is weathering scrutiny over a series of privacy scandals.

Fourth-quarter sales were US$16.91 billion (S$22.8 billion), ahead of the US$16.4 billion analysts expected. Earnings also topped expectations, sparking a share surge of more than 7 per cent in extended trading on Wednesday.

Facebook had 1.52 billion daily active users in December, up 9 per cent from a year earlier.

Wall Street was looking for 1.51 billion, according to the average of four analyst forecasts. The company also reported an uptick in daily users in mature markets like Europe, which investors were concerned had reached saturation.

"Users remained stable in North America and grew in Europe despite the negative news flow and increased scrutiny," said Mr Christopher Rossbach, chief investment officer of private investment office J. Stern & Co. "These results prove the resilience of the core Facebook platform."

The growth shows that Facebook's problems have not damaged the business much. Facebook ads, and those of larger rival Google, are still more relevant and effective than most other options, precisely because the companies collect so much information on activity across the Internet and beyond.

New data-privacy rules in Europe may have limited this data harvesting slightly, but that has hit smaller competitors more than the two giants. Shares of Google parent Alphabet Inc rose 1.6 per cent in extended trading on Wednesday.

"Between the intellectual tech press and the Washington elite, there's a huge disconnect between the news and what the rest of the world is doing," said Mr Richard Greenfield, an analyst at BTIG LLC in New York City. "Advertisers don't listen to either of those groups - they listen to consumers. Most of Facebook's advertisers have no other place to go with a return on investment this good."

The company has also been making progress with emerging advertising initiatives. It has been running more promotions in messaging apps and in user posts called "stories" that last only 24 hours, because the main Facebook news feed is so popular it has less room to grow.

STILL STRONG

These results prove the resilience of the core Facebook platform.

MR CHRISTOPHER ROSSBACH, chief investment officer of private investment office J. Stern & Co.

Instagram's Stories product has 500 million users now, chief executive officer Mark Zuckerberg said during a conference call with analysts. He also said the firm is focusing on making more of its messaging services encrypted by default, and expanding shopping on Instagram.

Facebook has sparked outrage over its handling of the vast amounts of data it collects about people. During the fourth quarter, the public learnt more about how it let Russia manipulate users in campaigns that continued through the 2018 US midterm elections.

The company also revealed a major privacy breach, after a bug allowed outsiders to access search histories and location check-ins of 14 million people.

 
 

There are some long-term effects to these short-term scares. When Facebook's Portal device for home-video chatting was launched in the fourth quarter, some consumers expressed reservations about the privacy of the product. Mr Zuckerberg told analysts the device sold "better than expected", without disclosing numbers. Before the results, Facebook shares closed up more than 4 per cent to US$150.42 in New York trading. They are still down about 30 per cent from a record high in July.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on February 01, 2019, with the headline 'Facebook's profit tops estimates, sparks share surge'. Print Edition | Subscribe