Turbulence inflicts little damage on Facebook’s bottom line.
Earnings per share up 63 percent and 34 cents higher than forecasts
MENLO PARK » Despite reeling from data-privacy and election-related scandals that have led to Chief Executive Mark Zuckerberg and other Facebook representatives testifying on Capitol Hill, the public uproar inflicted little damage to Facebook’s bottom line in the quarterly earnings it released Wednesday.
Facebook easily outperformed Wall Street’s expectations in the first quarter, from January through March. Earnings per share were $1.69, up 63 percent from a year earlier and 34 cents higher than analysts’ forecasts.
The consumer outrage at Facebook, manifested in the short-lived hashtag movement #DeleteFacebook following the Cambridge Analytica data controversy, didn’t appear to dent the social network’s user growth. Its daily and monthly active users globally reached 1.45 billion and 2.20 billion respectively, both increasing by 13 percent compared to a year earlier.
Facebook’s daily active users in the U.S. and Canada reached 185 million in the latest quarter, bouncing back from a 1 million-user drop in the fourth quarter, an earnings-presentation slide showed. The daily active users in the region had dipped in the fourth quarter after Facebook made changes to the content it shows users.
During testimony this month before the U.S. Senate, Zuckerberg said he did not see any dramatic falloff in users.
“As you know, we have important issues to address,” Zuckerberg said, during a Wednesday conference call with analysts. “2018 is a year of important investments. We are taking a broader view of our responsibilities. We also need to keep moving forward.”
Facebook’s first-quarter revenue, at $11.97 billion, comfortably beat market forecasts compiled by Bloomberg that averaged $11.41 billion. Its revenue this quarter was 49 percent higher than in the same period last year.
Mobile advertising generated 91 percent of Facebook’s total revenue, up from 85 percent last year.
In its earnings report, Facebook also said that this month, it increased the amount authorized under its share-buyback program by an additional $9 billion.
Facebook’s share price soared around 7.5 percent higher in after-hours trading Wednesday.
The past month has been one of the most turbulent in Facebook’s 14year old history, following revelations about the company’s relationship with the British political data firm Cambridge Analytica. While Facebook was aware as early as 2015 that Cambridge Analytica improperly collected millions of Facebook users’ information, former Cambridge Analytica employee Christopher Wylie blew the whistle in March on his employer’s use of the data in seeking to influence political elections.
Prior to Cambridge Analytica, Facebook reeled from the extent of Russian interference in the 2016 presidential election through its platform, culminating in its general counsel Colin Stretch testifying before Congress. In April, Facebook announced it had removed more than 270 accounts and pages tied to a St. Petersburg-based disinformation company called Internet Research Agency.
Facebook subsequently revealed that 87 million users’ information was shared with Cambridge Analytica. Around 270,000 users directly downloaded the personality quiz app at the heart of the scandal, which collected data on each downloaded user and on all of his or her friends.
The fallout prompted Facebook co-founder and CEO Zuckerberg to testify before Congress this month to answer for the company’s data practices. Facebook’s Chief Technology Officer Mike Schroepfer is expected to testify in front of a United Kingdom parliamentary panel on Thursday.
Analysts agreed the Cambridge Analytica scandal did not heavily impact the first-quarter result as the scandal surfaced in mid-March. While calling it the “most important quarter in the company’s history,” GBH Insights’ head of technology research Daniel Ives said that the next earnings result may better reflect how much the scandal has affected Facebook’s bottom line.
“Advertising revenue came in stronger than expected and that will be a big relief for Wall Street,” said Ives of the first-quarter result. “You can’t call this a victory yet, but you call it a step in the right direction. It will restore comfort for investors.”
Pivotal Research analyst Brian Wieser sought a more long-term view of Facebook as he was more concerned about how an upcoming set of privacy regulations in the European Union called General Data Privacy Regulations will mold Facebook’s data privacy practices.
“If there was any direct impact from Cambridge Analytica, it’s too early to see,” said Wieser. “The impact — if there is one — will play out over time in terms of informing how Europe regulates via GDPR and whether or not meaningful data privacy rules emerge in the U.S. or elsewhere.”
During the earnings call, Facebook’s Chief Financial Officer David Wehner said GDPR may affect Facebook, such as flattening or decreasing its daily active users in Europe. However, he added GDPR is likely to impact the whole online advertising industry, not just Facebook.
The fallout also prompted Facebook to issue a slew of changes to its policies and regulations regarding user data. On Tuesday, Facebook made public its internal com- munity standards — on how it deals with threats of violence, hate speech and other sensitive topics
— for the first time. Facebook earlier this month also issued new changes to vet anyone who seeks to purchase a political advertisement on its platform.
Zuckerberg on Wednesday repeated the importance of artificial intelligence bots which flag and block harmful content, such as terrorism propaganda from ISIS or Al Qaeda, before it is disseminated en masse. But Zuckerberg acknowledged AI is still a developing tool, as linguistic nuances make it hard to flag certain types of content.
“It’s much easier to build an AI system to detect a nipple than it is to detect hate speech,” said Zuckerberg.