Facebook roars ahead in spite of data debacle
Facebook’s powerful revenue machine is blazing ahead despite the recent data-privacy scandal.
In its first earnings report since the furor began last month, the Menlo Park social network on Wednesday blew past expectations, raking in nearly $5 billion in profit during the first quarter, up 63 percent from a year ago. Both advertising revenues and membership showed healthy gains.
Still, it is too soon to tell how Facebook’s future fortunes might be affected by the aftermath of revelations that Cambridge Analytica, a British political consulting firm that worked on Donald Trump’s presidential campaign,
improperly obtained data from the profiles of up to 87 million Facebook users — an astonishing number — several years ago.
The crisis, which culminated in two days of intense Congressional questioning this month for CEO Mark Zuckerberg, happened too late in the first quarter to have much effect on the company’s reported advertising revenues or overall membership, said Debra Aho Williamson, principal analyst with the research firm eMarketer. Only about four major advertisers “paused” their spending on Facebook, “and they mainly did it for public relations value and not for any extended period of time,” she said.
Investors, who have weathered a rocky month, seemed buoyed by Wednesday’s results. Facebook’s stock rose 7 percent in after-hours trading following the release of the earnings report. Revenue, most of it from advertising, soared nearly 50 percent to $11.97 billion.
“Despite facing important challenges, our community and business are off to a strong start in 2018,” Zuckerberg said Wednesday during a conference call with Wall Street analysts.
The revelation of just how loose Facebook’s data policies have been prompted some users to delete their accounts. But so far, Facebook has simply kept growing. Monthly active users rose 13 percent to 2.2 billion, including 1.45 billion who use the social network daily, the company said. Williamson, the eMarketer analyst, said any changes in Facebook users’ behavior may not be clear until summer, when the company releases its next earnings report.
On Wednesday, Zuckerberg and Chief Financial Officer Dave Wehner declined to reveal specifics about how long users were spending on Facebook, although they did say the time spent watching video has declined.
Facebook has tightened up its privacy policies in response to user concerns, though some critics — including in Washington and Sacramento — think it has not gone far enough. Congress is also scrutinizing the company’s role in enabling the spread of Russian propaganda ahead of the 2016 election, and human-rights activists around the world are pressuring Zuckerberg to move more quickly to take down fake news in various languages that can lead to violence and hatred.
Facebook now has 27,742 employees, including about 2,600 added during the first quarter. The company has pledged to double the number of workers handling security and safety issues, but Zuckerberg also reiterated his hope that artificial intelligence will eventually help weed out bad actors, though that technology will take time to build.
“We’re much better able to enforce our nudity policies than we are hate speech,” he said. “It’s much easier to build an AI system that can detect a nipple than it is to determine what is linguistically hate speech.”
Zuckerberg also called this month’s Congressional hearings “an important moment for the company to hear the feedback and to show what we are doing.”
GBH Insights analyst Daniel Ives said his company’s researchers found that 15 percent of Facebook users they polled had decreased their use of the social network in light of the Cambridge Analytica revelations — so the first-quarter earnings appear to be a “relief,” even as storm clouds remain.
Even if Facebook weathers the data-privacy storm without harsh regulation in the United States, the company still faces hurdles worldwide. Facebook executives said that changes needed to comply with Europe’s General Data Protection Regulation, a sweeping rule that takes effect May 25, could potentially reduce advertising revenues for all online companies. However, they anticipate minimal impact to Facebook’s revenue and membership numbers in the second quarter.
“We’ll just have to watch how that plays out over time,” Wehner said.