Facebook’s increase in profit shows resilience
Facebook beats estimates with 63% rise in profit despite Cambridge Analytica data privacy scandal
San Francisco/Bengaluru: Facebook Inc. shares rose on Wednesday after the social network reported a surprisingly strong 63% rise in profit and an increase in users, with no sign that business was hurt by a scandal over the mishandling of personal data.
After easily beating Wall Street expectations, shares traded up 7.1% after the bell at $171, paring a month-long decline that began with Facebook’s disclosure in March that consultancy Cambridge Analytica had harvested data belonging to millions of users.
The Cambridge Analytica scandal, affecting up to 87 million users and prompting several apologies from chief executive officer (CEO) Mark Zuckerberg, generated calls for regulation and for users to leave the social network, but there was no indication advertisers immediately changed their spending.
“Everybody keeps talking about how bad things are for Facebook, but this earnings report to me is very positive, and reiterates that Facebook is fine, and they’ll get through this,” said Daniel Morgan, senior portfolio manager at Synovus Trust Company. His firm holds about 73,000 shares in Facebook.
Facebook’s quarterly profit beat analysts’ estimates, as a 49% jump in quarterly revenue outpaced a 39% rise in expenses from a year earlier. The mobile ad business grew on a push to add more video content.
Facebook said monthly active users in the first quarter rose to 2.2 billion, up 13% from a year earlier and matching expectations, according to Thomson Reuters I/B/E/S.
The company reversed last quarter’s decline in the number of daily active users in the US and Canada, saying it had 185 million users there, up from 184 million in the fourth quarter.
The results are a bright spot for the world’s largest social network amid months of negative headlines about the company’s handling of personal information, its role in elections and its fuelling of violence in developing countries.
Facebook, which generates revenue primarily by selling advertising personalized to its users, has demonstrated for several quarters how resilient its business model can be as long as users keep coming back to scroll through its News Feed and watch its videos.
It is spending to ensure users are not scared away by scandals. Chief financial officer (CFO) David Wehner told analysts on a call that expenses this year would grow between 50% and 60%, up from a prior range of 45% to 60%.
Much of Facebook’s ramp-up in spending is for safety and security, Wehner said. The category includes efforts to root out fake accounts, scrub hate speech and take down violent videos.
Facebook said it ended the first quarter with 27,742 employees, up 48% from a year earlier.
“So long as profits continue to grow at a rapid rate, investors will accept that higher spending to ensure privacy is warranted,” Wedbush Securities analyst Michael Pachter said.
It has been nearly two years since Facebook shares rose 7% or more during a trading day. They rose 7.2% on 28 April, 2016, the day after another first-quarter earnings report.
Net income attributable to Facebook shareholders rose in the first quarter to $4.99 billion, or $1.69 per share, from $3.06 billion, or $1.04 per share, a year earlier.
Analysts on average were expecting a profit of $1.35 per share, according to Thomson Reuters I/B/E/S.Reuters
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