COULD HAVE BEEN WORSE? FACE­BOOK POSTS MIXED 3Q RE­SULTS

Apple Magazine - - Summary -

Face­book didn’t hit it out of the ball­park with its lat­est quar­terly re­port, but the bar isn’t so high these days for the im­age-bat­tered so­cial networking gi­ant.

The com­pany re­ported a slight rev­enue miss but stronger than ex­pected profit for the July Septem­ber pe­riod. Com­ing three months af­ter its stock suf­fered its worst one-day drop in his­tory, wip­ing out $119 bil­lion of its market value, the mixed re­sults were per­haps not the re­demp­tion Face­book hoped for.

Shares were volatile in af­ter-hours trad­ing — drop­ping the most, briefly, when ex­ec­u­tives dis­cussed a de­cline in ex­pected rev­enue growth and in­creas­ing ex­penses dur­ing the con­fer­ence call. Still, the stock gen­er­ally vac­il­lated in the low sin­gle-digit per­cent­ages, sug­gest­ing, at least, that the so­cial me­dia gi­ant didn’t spook in­vestors too badly.

With the myr­iad prob­lems Face­book is fac­ing, that passes for good news these days.

“Over­all, given all the chal­lenges Face­book has faced this year, this is a de­cent earn­ings re­port,” said eMar­keter an­a­lyst De­bra Aho Wil­liamson.

Face­book had 2.27 bil­lion monthly users at the end of the quar­ter, be­low the 2.29 bil­lion an­a­lysts were ex­pect­ing. Face­book says it changed the way it cal­cu­lates users, which re­duced the to­tal slightly. The com­pany’s user base was still up 10 per­cent from 2.07 bil­lion monthly users a year ago.

The com­pany earned $5.14 bil­lion, or $1.76 per share, up 9 per­cent from $4.71 bil­lion, or $1.59 per share, a year ear­lier. Rev­enue was $13.73 bil­lion, an in­crease of 33 per­cent, for the Jul­y­Septem­ber pe­riod.

An­a­lysts had ex­pected earn­ings of $1.46 per share on rev­enue of $13.77 bil­lion, ac­cord­ing to Fac­tSet.

CEO Mark Zucker­berg called 2019 “an­other year of sig­nif­i­cant in­vest­ment” dur­ing the earn­ings call. Af­ter that, he said “I know that we need to make sure our costs and rev­enue are bet­ter matched over time.”

The com­pany had al­ready warned last quar­ter that its rev­enue growth will slow down sig­nif­i­cantly for at least the rest of this year and that ex­penses will con­tinue to bal­loon as it spends on se­cu­rity, hir­ing more con­tent moder­a­tors around the world and on de­vel­op­ing its prod­ucts, be they mes­sag­ing apps, video or vir­tual re­al­ity head­sets.

The fol­low­ing day the stock plunged 19 per­cent. Shares not only haven’t re­cov­ered, they’ve since fallen fur­ther amid a broader de­cline in tech stocks.

Face­book’s in­vestors, users, em­ploy­ees and ex­ec­u­tives have been grap­pling not just with ques­tions over how much money the com­pany makes and how many peo­ple use it, but its ef­fects on users’ men­tal health and wor­ries over what it’s do­ing to po­lit­i­cal dis­course and elec­tions around the world. Is Face­book killing us? Is it killing democ­racy?

The prob­lems have been re­lent­less for the past two years. Face­book can hardly crawl its way out of one be­fore an­other comes up. It be­gan with “fake news” and its ef­fects on the 2016 pres­i­den­tial elec­tion (a no­tion Zucker­berg ini­tially dis­missed) and con­tin­ued with claims of bias among con­ser­va­tives that still haven’t re­lented.

Then there’s hate speech, hacks and a mas­sive pri­vacy scan­dal in which Face­book ex­posed the data of up to 87 mil­lion users to a data min­ing firm, along with re­sult­ing moves to­ward gov­ern­ment reg­u­la­tion of so­cial me­dia. Amid all this, there have been so­phis­ti­cated at­tempts from Rus­sia and Iran to in­ter­fere with elec­tions and stir up po­lit­i­cal dis­cord in the U.S.

All this would be more than enough to deal with. But the busi­ness chal­lenges are also pil­ing up. There are stricter pri­vacy reg­u­la­tions in Europe that can im­pede how much data it col­lects on users. Face­book and other tech com­pa­nies face a new “dig­i­tal tax” in the UK.

On Tues­day, Ar­juna Cap­i­tal and the New York State Com­mon Re­tire­ment Fund filed a share­holder pro­posal ask­ing Face­book to pub­lish a re­port on its poli­cies for gov­ern­ing what is posted on its plat­form and ex­plain what it is do­ing to “ad­dress con­tent that threat­ens democ­racy, hu­man rights, and free­dom of ex­pres­sion.”

“Young users are delet­ing the app and all users are tak­ing breaks from Face­book,” said Natasha Lamb, man­ag­ing part­ner at Ar­juna Cap­i­tal. “When you start to see users turn away from the plat­form, that’s when in­vestors get con­cerned.”

A re­cent Pew Re­search Cen­ter sur­vey found that more than a quar­ter of U.S. Face­book users have deleted the app from their phones and 42 per­cent have taken a break for at least a few weeks. Younger users were much more likely to delete the app than their older coun­ter­parts.

Nonethe­less, Face­book is still en­joy­ing healthy user growth out­side the U.S.

Face­book’s stock climbed $4.07, or 2.8 per­cent, to $150.29 in af­ter-hours trad­ing. The stock had closed at $146.22, down 17 per­cent year-to-date.

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