BackFacebook sales top estimates, fuelling brisk pace of investments
Net income shrank to $719 million from $791 million a year ago, while the operating margin narrowed to 31% from 48%
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San Francisco: Facebook Inc., buoyed by robust advertising sales, signalled that it will keep up its brisk pace of investments to attract users and advertisers.
Spending climbed 82% in the second quarter as the social-media company increased hiring, poured money into data centres and boosted marketing. While that was more than double the rate of sales growth, Facebook still managed to top analysts’ revenue estimate, crossing the $4 billion mark for the first time.
Chief executive officer Mark Zuckerberg has made it clear to investors that he plans to continue investing in new features and products, such as virtual reality and artificial intelligence. Even with a base of 1.49 billion users, Zuckerberg contends that the company’s biggest days are ahead, as more people connect to the Internet and each other, using what’s evolved out of the social network he started in a Harvard University dorm room in 2004.
“Facebook has the most untapped growth of any other tech company," said James Cakmak, an analyst at Monness Crespi Hardt and Co., who has a buy rating on the stock.
Shares of Menlo Park, California-based Facebook fell 3.4% in extended trading, after advancing 1.8% to $96.99 at the close in New York. The stock is up 24% this year.
Yet Facebook also signalled that it wouldn’t let investments grow uncontrollably. The company forecast that expenses will rise 55% to 60% this year, compared with a previous range of 55% to 65%.
Facebook is improving tools for advertisers and expanding the audience for its mobile applications beyond Facebook itself, including Messenger, Instagram and WhatsApp, which have yet to contribute meaningfully to revenue. Monthly active users for Facebook’s main social network jumped 13% to 1.49 billion, with 1.31 billion people logging in at least once a month via mobile.
Investment year
Net income shrank to $719 million from $791 million a year earlier, while the operating margin, a measure of profitability, narrowed to 31% from 48%. Revenue rose 39% to $4.04 billion.
“They have said this is an investment year," said Brian Wieser, an analyst at Pivotal Research. Still, “they have so many initiatives that could contribute more to growth."
Zuckerberg explained on a conference call that Facebook’s investments in virtual reality will pay off once social networking moves to a more visual medium. Oculus, which Facebook bought for $2 billion last year, will start selling virtual-reality headsets to consumers next year.
“Now it’s mostly visual and photos," Zuckerberg said. “We are entering into a period where that’s going to increasingly be primarily video, and we’re seeing huge growth there. But that’s not the end of the line ... There’s always a richer way that people want to share and consume thoughts and ideas, and I think that immersive 3-D content is the obvious next thing after video."
User growth
Facebook’s ability to keep adding users and keeping them engaged stands in stark contrast to Twitter Inc., which is struggling to break past 300 million people.
The total number of Facebook users who logged in daily rose to 968 million in June, the company said, slightly less than the 970.5 million projection of four analysts surveyed by Bloomberg.
The daily user shortfall may indicate that user engagement hasn’t really grown, according to Geetha Ranganathan, a Bloomberg Intelligence analyst.
“Stickiness of the platform is very important for advertisers," Ranganathan said. Bloomberg
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