Facebook profit beats Wall St, shares jump after hours

Facebook profit beats Wall St, shares jump after hours
Highlights

Facebook Inc on Wednesday easily beats Wall Streets profit estimates, soothing investor concerns that increased spending on the privacy of its users would blunt growth

Facebook Inc on Wednesday easily beats Wall Street’s profit estimates, soothing investor concerns that increased spending on the privacy of its users would blunt growth.

The world’s largest online social media network has pledged to invest heavily in the privacy and security of its users after scandals over improperly shared data and propaganda hurt its image and made it the target of political scrutiny across the globe.

Wednesday’s better-than-expected profit reassured investors that the company could keep growing, even after posting its slowest quarterly revenue growth in more than six years as a public company.

“These numbers are actually some of the most reassuring in its short history,” said George Salmon, an analyst at Hargreaves Lansdown. “Not only are login trends in Europe improving after a stagnant couple of quarters, but the group has also beaten expectations on revenue and profit. These results will go a long way towards regaining the trust of Wall Street.”

Facebook shares rose nearly 12 per cent to USD 168.20 after the bell. They closed up 4.3 per cent in regular trading.

Net income rose to USD 6.88 billion, or USD 2.38 per share, in the fourth quarter, up from USD 4.27 billion, or USD 1.44 per share, a year earlier. Analysts on average had expected earnings of USD 2.19 per share, according to IBES data from Refinitiv.

Total fourth-quarter revenue rose 30 per cent to USD 16.9 billion from USD 12.97 billion, compared to analysts’ average estimate of USD 16.4 billion.

“The worst is over for this social media giant,” said Haris Anwar, an analyst at Investing.com: “Its ad business and user engagement haven’t been affected despite all the negative blows of the past year.”

The company’s shares have lost a third of their value since July when it first warned about slowing growth in revenue and operating margin. The share price remains near its lowest point in two years.

“We’ve fundamentally changed how we run our company to focus on the biggest social issues, and we’re investing more to build new and inspiring ways for people to connect,” Mark Zuckerberg, Facebook’s founder and chief executive, said in a statement.

Previously, Facebook’s weakest quarterly sales growth as a publicly traded company, 32.2 per cent, came in each of its first two reporting quarters in 2012.

Total expenses in the fourth quarter surged to USD 9.1 billion, up 62 per cent compared with a year ago. The operating margin fell to 46 per cent in the fourth quarter from 57 per cent a year ago.

Facebook said on a conference call after reporting earnings that its total revenue growth rate this quarter would decelerate by mid-single digits, excluding currency fluctuations, compared to the fourth quarter, and would continue to slow down throughout the year. It said it continued to expect 2019 total expenses to grow about 40 per cent to 50 per cent compared with 2018.

Despite its privacy issues, Facebook managed to gain some new users, particularly in India, Indonesia and the Philippines. Facebook said more than 2.7 billion users interact with at least one of its apps each month, up from 2.6 billion last quarter.

Monthly and daily users of the main Facebook app compared to last quarter were up 2.2 per cent to 2.32 billion and 2.0 per cent 1.52 billion, respectively.

Estimates were for 2.3 billion monthly users and 1.5 billion daily users, according to Refinitiv averages.

Facebook shares continue to trade at a discount to peers. Shares entering Wednesday of No. 1 online ad seller Alphabet Inc, for instance, were priced at 22.4 times expected earnings over the next 12 months, compared to 19.3 times for Facebook.

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