Facebook's Users Increase Engagement -- WSJ
July 31 2020 - 3:02AM
Dow Jones News
Revenue manages to grow but rate of increase declines and is
expected to stay low
By Jeff Horwitz
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 31, 2020).
Facebook Inc. powered through the throes of the pandemic, as the
social-media giant's revenue rose in the second quarter thanks to
increased engagement from users.
The company, nonetheless, posted a significant decline in its
revenue growth rate and warned that growth will remain muted amid
continued economic fallout from the pandemic, an advertiser boycott
and reduced efficacy of ad targeting.
(Amazon, Apple and Google also reported earnings on Thursday.
Follow our coverage for results and analysis.)
Facebook generated $18.7 billion in revenue, up from $16.9
billion a year earlier and above analysts' expectations of $17.34
billion, according to data from FactSet. The 11% growth is a
deceleration from the average gain of nearly 25% for the preceding
four quarters.
Profit for the second quarter nearly doubled to $5.18 billion,
or $1.80 a share, exceeding Wall Street estimates. Facebook shares
gained more than 6% in after-hours trading.
The results once again show the resilience of Facebook's
business even as it is buffeted by one controversy after another.
Chief Executive Mark Zuckerberg was one of four major tech CEOs to
testify before Congress on Wednesday about whether their companies
have accumulated too much power.
Mr. Zuckerberg used the company's earnings call Thursday to make
a different case: that Facebook is a vital social good and that
overly broad regulatory efforts to hobble it would be
counterproductive. Increased usage of its products in recent months
shows the platform is helping society weather the pandemic, he
said, adding that he believes the U.S. government's response to the
pandemic has fallen short.
Mr. Zuckerberg said efforts to significantly restrict how
Facebook collects and deploys data about its users could be
harmful, calling the company's personalized advertising a lifeline
for small businesses struggling to survive social-distancing
mandates. If ad targeting were significantly restricted, he said,
"this would reduce opportunity for small businesses so much that it
would probably be felt at a macroeconomic level. Is that really
what policy makers want?"
The recent quarter was the first to reflect the full weight of
the coronavirus pandemic in the U.S. -- which upended normal
economic activity but fueled usage of Facebook's products. Average
monthly users of the Facebook platform rose to 2.7 billion, from
2.6 billion in the first quarter. More than three billion people
now use at least one of Facebook's products on a monthly basis.
Facebook had joined other social-media companies in predicting
that pandemic fallout would damp its near-term prospects. On
Thursday, it said that in the first weeks of the current quarter
revenue grew at a 10% clip year over year, a rate it predicted
would hold through September.
Facebook, which traditionally hasn't offered such guidance, said
the forecast reflected uncertainty about the economy, the current
ad boycott and limitations on Facebook's ad-targeting business
applied by California's data privacy law as of the start of this
month.
The ad boycott, which was rooted in frustrations from
civil-rights groups about how Facebook handles hate speech, began
in July and thus didn't affect second-quarter results. The
monthlong boycott is scheduled to end Friday though some
advertisers may continue to limit spending on Facebook's
platforms.
While Facebook cited the boycott as a likely contributor to
lower revenue growth in the third quarter, both Mr. Zuckerberg and
Chief Operating Officer Sheryl Sandberg played down its impact on
the company's actions. Facebook would continue engaging with
civil-rights groups and working to combat hate speech "not because
of pressure from advertisers, but because it is the right thing to
do," Ms. Sandberg said.
Facebook's nonadvertising business, which includes
virtual-reality division Oculus, as well as Portal, its home video
calling device, was an exception to the slower growth, with sales
rising 40% from a year earlier. Advertising still accounts for 98%
of Facebook's revenue.
The company's 32% gross margin for the period compared with 31%
for the first quarter and 27% in last year's second quarter. Mr.
Zuckerberg had predicted that the margin would drop throughout 2020
as the company used its financial strength to invest in new
products and employees.
Over the past few months, the company has rushed to release new
products in major markets, including a customizable shopping
feature aimed at small business, a video chat product called Rooms
and Instagram Reels, which copies many of the features popularized
by rival social-media platform TikTok.
Mr. Zuckerberg has said that he expects the pandemic will alter
consumer behavior long term in ways that will benefit Facebook as
people spend more of their lives online.
Write to Jeff Horwitz at Jeff.Horwitz@wsj.com
(END) Dow Jones Newswires
July 31, 2020 02:47 ET (06:47 GMT)
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