Facebook tops expectations with more than $6bn in profit

Shares of the world's largest social network rose on Wednesday but the company remains under pressure from regulators.

    US-based social media giant Facebook Inc reported better-than-expected revenue for the quarter as its existing businesses continue to grow at a fast pace [File: Dado Ruvic/Illustration/Reuters]
    US-based social media giant Facebook Inc reported better-than-expected revenue for the quarter as its existing businesses continue to grow at a fast pace [File: Dado Ruvic/Illustration/Reuters]

    Social media giant Facebook Inc reported better-than-expected quarterly revenue on Wednesday and profit rose as growth in expenses slowed from a year earlier, easing investor fears of financial fallout from fierce scrutiny by regulators and legislators.

    Shares of the company rose nearly three percent after hours.

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    Facebook's third-quarter revenue rose 28 percent compared with a year ago to $17.38bn, beating analysts' average estimate of $17.37bn, according to IBES data from Refinitiv.

    Facebook reported $6.09bn in profit or $2.12 per share. Analysts expected $5.47bn in profit or $1.91 per share.

    Over the last three years, Facebook has faced rising hostility from both users and legislators over its handling of user data and its inability to ensure the integrity of its popular news feeds. It also faces growing regulatory challenges as authorities in the United States investigate whether it has engaged in anti-competitive practices.

    Debra Aho, principal analyst at eMarketer, a market research company that provides insights and trends related to digital marketing, said she was "not surprised" by Facebook's solid results.

    "Advertisers continue to support Facebook, despite the many controversies swirling around the company, and the user base also continues to expand around the world," Aho said in an emailed statement. "Yes, Facebook has a lot of challenges it must deal with, but increasing its revenue and user count isn't one of them."

    Facebook, the world's number-two seller of online ads, had experienced about 18 months of slow sales growth and elevated spending heading into the third quarter. Concerns over privacy have fueled an acceleration in costs for privacy staff and other roles.

    Facebook's privacy scandals have helped inspire browser makers, operating system vendors, and other software companies to provide people with more tools to block the type of online tracking that has been essential to Facebook's algorithms for targeting advertisements.

    Facebook, Twitter Inc and Alphabet Inc's Google have been under pressure to police their platforms after facing criticism for failing to counter alleged Russian interference in the 2016 US presidential election.

    In recent weeks, Facebook has come under fire over its decision not to fact-check ads run by politicians on the platform.

    Twitter's CEO, Jack Dorsey, on Wednesday said Twitter will ban political advertising on its platform from November 22.

    Facebook's existing businesses continued to grow at a fast pace in the first half of the year. But whether it can maintain the momentum has been unclear with newer ventures including privacy-focused messaging services, its expansion into online dating or its burgeoning features for group discussions and eBay-like shopping centre.

    For the quarter, the company reported 2.8 billion monthly users and 2.2 billion daily users across Facebook, Messenger, Instagram and WhatsApp, both slightly higher than the previous quarter.

    Facebook itself had 1.62 billion daily users, versus estimates of 1.61 billion. Monthly active users rose to 2.45 billion, in line with estimates, according to IBES data from Refinitiv.

    Facebook, which experienced stagnant user growth in Europe and the US in previous quarters, added daily users compared with the previous quarter in all four of its regions for the first time this year.

    Facebook also said one of its board directors, Susan Desmond-Hellmann, chief executive of The Bill and Melinda Gates Foundation, would be stepping down and that a replacement would be named in the coming months.

    Facebook shares have gained about 43.6 percent this year through Wednesday's close, thanks to the above-expectations revenue in the first half of the year. The company reached a five-billion-dollar settlement in a US Federal Trade Commission probe, which started after its Cambridge Analytica data misuse scandal and threatened to cost the company several more billions.

    Even so, shares have not recovered to their record closing high of $194.32 in June 2018, just before a dramatic drop that summer amid escalating costs.

    And Facebook still faces extensive regulatory challenges. Its competitive practices are under investigation separately by the US Congress, Department of Justice, FTC and 47 state attorneys general.

    The break-up or tighter regulation of Facebook and other big tech firms over antitrust concerns has also emerged as a key issue for Democratic candidates in the run-up to the November 2020 US presidential election.

    Last week, Facebook CEO Mark Zuckerberg was grilled by US legislators on issues from its planned digital currency Libra to election interference.

    The Libra project has faltered in recent weeks amid sustained criticism from legislators and regulators globally over fears it may aid money laundering and upend the global financial system.

    Facebook's total expenses in the third quarter were $10.5bn, up 32 percent compared with a year ago. The third-quarter operating margin was 41 percent from 42 percent a year ago.

    SOURCE: Reuters news agency