January 31, 2019 – Facebook on Wednesday easily beat Wall Street’s profit estimates, soothing investor concerns that increased spending on the privacy of its users would blunt growth. Despite its privacy issues, Facebook managed to gain some new users, particularly in India, Indonesia and the Philippines. Facebook said more than 2.7 billion users interact with at least one of its apps each month, up from 2.6 billion last quarter.
Monthly and daily users of the main Facebook app compared to last quarter were up 2.2 percent (up 9 percent from a year earlier) to 2.32 billion and 2.0 percent 1.52 billion, respectively. Estimates were for 2.3 billion monthly users and 1.5 billion daily users, according to Refinitiv averages.
Last year was replete with major challenges for Facebook, starting with its biggest privacy scandal when Cambridge Analytica, a political data-mining that worked for the 2016 Trump campaign, accessed the private information of up to 87 million users.
That plus continuing fallout from fake news and Russian election meddling on Facebook led to congressional hearings; then came privacy bugs and even a hack. So far, this year hasn’t been much better when it comes to scrutiny from critics and lawmakers. On Wednesday, Facebook faced charges of deceiving users, including teens, it paid to download an app that extensively tracked their phone and internet use.
Facebook estimated that approximately 2.7 billion people use its “family” of services including Instagram, WhatsApp, Messenger, and its core social network.
“Our community and business continue to grow,” co-founder and chief executive Mark Zuckerberg said in an earnings call.
The company faces demographic challenges as younger users shift to other platforms, seeing Facebook as less cool than it once was. Visual social network Instagram has been a bright spot for Facebook, with use and revenue rising.
Analysts are watching to see how well Facebook’s other services, including Instagram, messaging services WhatsApp and Messenger and its Oculus virtual reality division, play into its fortunes.
“Messaging is an area that is growing most quickly, and this year people are going to feel these apps becoming the center of their social experience in more ways,” Zuckerberg said.
The world’s largest online social media network has pledged to invest heavily in the privacy and security of its users after scandals over improperly shared data and propaganda hurt its image and made it the target of political scrutiny across the globe.
Wednesday’s better-than-expected profit reassured investors that the company could keep growing, even after posting its slowest quarterly revenue growth in more than six years as a public company.
“These numbers are actually some of the most reassuring in its short history,” said George Salmon, an analyst at Hargreaves Lansdown. “Not only are login trends in Europe improving after a stagnant couple of quarters, the group has beaten expectations on revenue and profit. These results will go a long way towards regaining the trust of Wall Street.”
Facebook shares rose nearly 12 percent to $168.20 (roughly Rs. 12,000) after the bell. They closed up 4.3 percent in regular trading. Net income rose to $6.88 billion (roughly Rs. 48,000 crores), or $2.38 (roughly Rs. 170) per share, in the fourth quarter, up from $4.27 billion, or $1.44 per share, a year earlier. Analysts on average had expected earnings of $2.19 per share, according to IBES data from Refinitiv. Total fourth-quarter revenue rose 30 percent to $16.9 billion from $12.97 billion, compared to analysts’ average estimate of $16.4 billion.
“The worst is over for this social media giant,” said Haris Anwar, an analyst at Investing.com: “Its ad business and user engagement haven’t been affected despite all the negative blows of the past year.”
The company’s shares have lost a third of their value since July, when it first warned about slowing growth in revenue and operating margin. The share price remains near its lowest point in two years.
“We’ve fundamentally changed how we run our company to focus on the biggest social issues, and we’re investing more to build new and inspiring ways for people to connect,” Mark Zuckerberg, Facebook’s founder and chief executive, said in a statement.
Previously, Facebook’s weakest quarterly sales growth as a publicly traded company, 32.2 percent, came in each of its first two reporting quarters in 2012. Total expenses in the fourth quarter surged to $9.1 billion, up 62 percent compared with a year ago. The operating margin fell to 46 percent in the fourth quarter from 57 percent a year ago.
Facebook said on a conference call after reporting earnings that its total revenue growth rate this quarter would decelerate by mid-single digits, excluding currency fluctuations, compared to the fourth quarter, and would continue to slow down throughout the year. It said it continued to expect 2019 total expenses to grow about 40 percent to 50 percent compared with 2018.