Profit soar with wings, no scandal sign from Russia: FACEBOOK
Facebook Inc (FB.O)
faced harsh criticism in Washington on Wednesday over its failure to
prevent Russian operatives from using its platform for election
meddling, but the earnings report it issued hours later showed just how
insulated its business remains from political risk.
The chief executive told analysts that legislation to force disclosure of election ads “would be very good if done well.”
In a series of disclosures over two months, Facebook has said that people in Russia bought at least 3,000 U.S. political ads and published another 80,000 Facebook posts that were seen by as many as 126 million Americans over two years. Russia denies any meddling.
The social network said its quarterly profit soared
79 percent and revenues were up nearly 50 percent in the third quarter
as marketers poured money into Facebook's advertising offerings, whose
power to target and influence users has actually been showcased by the
election scandal.
Chief
Executive Mark Zuckerberg condemned Russia’s attempts to influence last
year’s election through Facebook posts and advertisements designed to
sow division, and repeated his pledge to ramp up spending to confront
the problem.
Zuckerberg said that spending
would include 10,000 additional people to review content on the network,
though based on past practice many of those people will be contractors.
The spending would hit profits, Facebook said, with expenses expected
to grow by 45 percent to 60 percent next year.
“What
they did is wrong, and we are not going to stand for it,” Zuckerberg
said of the Russians, on a conference call with analysts.
The
company’s share price, which hit a record $182.90 earlier on Wednesday,
initially rose in after-hours trading, but later fell into negative
territory on discussion of the higher spending. Shares have gained
almost 60 percent this year.
“While the
investigations into Russian activity on the platform have been getting a
lot of attention, they’re not detracting from Facebook’s power as an ad
platform,” analyst Debra Aho Williamson of research firm eMarketer said
in an interview.
The political storm in the United States over how Facebook, Twitter Inc (TWTR.N) and Alphabet Inc’s (GOOGL.O)
Google handle false news stories and political manipulation of their
services gathered strength this week as three separate congressional
committees held hearings.
Zuckerberg did not
appear at the hearings. But lawmakers threatened tougher regulation and
fired questions at Facebook General Counsel Colin Stretch, excoriating
the company for being slow to act and slow to share what it knew with
Congress.
In a series of disclosures over two months, Facebook has said that people in Russia bought at least 3,000 U.S. political ads and published another 80,000 Facebook posts that were seen by as many as 126 million Americans over two years. Russia denies any meddling.
Facebook’s total
advertising revenue rose 49 percent in the third quarter to $10.14
billion, about 88 percent of which came from mobile ads.
Analysts on average had expected total ad revenue of $9.71 billion, according to data and analytics firm FactSet.
Facebook
in the third quarter gave advertisers for the first time the ability to
run ads in standalone videos, outside the Facebook News Feed, and the
company is seeing good early results, Chief Operating Officer Sheryl
Sandberg told analysts.
“Video is exploding, and mobile video advertising is a big opportunity,” Sandberg said.
More than 70 percent of ad breaks up to 15 seconds long were viewed to completion, most with the sound on, she said.
Facebook
executives, though, declined to give details on the performance so far
of Watch, a video tab the company rolled out two months ago. “It’s too
early to be talking about any stats there,” Chief Financial Officer Dave
Wehner said in response to an analyst question.
Zuckerberg
said Facebook would be spending heavily in making the Watch tab a place
where “people want to talk and connect around,” rather than a spot to
passively consume programs.
The 49 percent
increase in total ad sales in the latest quarter compares with a 47
percent rise in the prior quarter and a 51 percent jump in the first
quarter.
Facebook has been warning for more
than a year about reaching a limit in “ad load”, or the number of ads
the company can feature in users’ pages before crowding their News Feed.
Advertisers seem unfazed, though, spending
heavily as the social network continues to attract users. The average
price per ad rose 35 percent.
The nearly 50
percent jump in ad revenue “is phenomenal, especially when for the past
few quarters they’ve been trying to bring that expectation way, way
down. Yet it keeps going up,” Tigress Financial Partners analyst Ivan
Feinseth said.
Of the Russia scandal
enveloping Facebook publicly, Feinseth said: “In the bigger picture, I
don’t think it’s a really big factor.”
The company’s performance was strong in comparison with smaller social media firms Snap Inc (SNAP.N) and Twitter, Wedbush analyst Michael Pachter said.
“Facebook
grew revenues by $3.3 billion year-over-year for the quarter. This is
more than Twitter and Snapchat generate combined for the full year,” he
said.
Facebook said about 2.07 billion people were using its service monthly, up 16 percent from a year earlier.
Net income rose to $4.71 billion, or $1.59 per share, from $2.63 billion, or 90 cents per share.