By Deepa Seetharaman
Facebook Inc.'s dominance in digital advertising powered another
surge in quarterly profit, though it said users were starting to
shave back their time on its platform as it tries to address
critics claims that the social network has harmful effects.
The company said its quarterly profit, excluding a giant $3.19
billion tax charge, soared 61% in the fourth quarter, typically the
heaviest spending period for advertisers. About $2.27 billion of
the charge stemmed from the new congressional tax overhaul.
That financial momentum is now being challenged. Earlier this
month, Chief Executive Mark Zuckerberg said he has resolved to
"fixing" problems that threaten to damage the company he co-founded
in 2004, even if it sacrifices profitability, including
discouraging users from passively consuming content found in their
newsfeed.
Those changes -- including showing fewer viral videos in the
latest quarter -- reduced the collective time Facebook users spend
on the platform by about 50 million hours a day in the three-month
period, Mr. Zuckerberg said. That decline translates to a little
more than two minutes a day for each of the company's 1.4 billion
daily users.
Mr. Zuckerberg said he expects users are more likely to stick
around for ads if they like what they are seeing. "When you care
about something, you're willing to see ads to experience it," he
said on a conference call with analysts. "But if you just come
across a viral video, then you're more likely to skip over it if
you see an ad."
On Wednesday, Facebook's stock fell about 5% in after-hours
trading shortly after the earnings report was released. But the
stock recovered from those losses during the analyst call, and was
up about 1.5% to $189.70. The shares have risen about 43% over the
past 12 months.
Facebook acknowledged the first-ever quarter-to-quarter decline
in the number of users who log in to the service daily in its most
lucrative market, the U.S. and Canada. Facebook lost about 700,000
daily users in that market to about 184 million, though it gained
33 million globally.
David Wehner, Facebook's financial chief, said he expects the
daily active users to fluctuate given the large numbers but said
Facebook doesn't "see this as an ongoing trend."
Still, Facebook's revenue leapt 47% to $12.97 billion, and it
managed to extract nearly $6 more revenue per user in the latest
three months, a notable 26% increase. The average price per ad rose
43%.
The growth underscores Facebook's still-potent ability to
attract new users and advertising dollars even as it confronts a
barrage of crises that have forced the company to rethink the way
it feeds content to roughly a quarter of the world's
population.
Critics of Facebook contend the company and other social
networks have allowed hate speech, violent live videos and
fabricated news articles to spread on its platform, harming
people's mental health and enabling bad actors to sway political
discourse. Several early Facebook employees and executives
including venture capitalist Chamath Palihapitiya and former
president Sean Parker have in recent months to expressed concern
about social-media addiction. Salesforce.com Inc. Chief Executive
Marc Benioff went so far as to liken social media to
cigarettes.
Some advertisers and agencies have joined the chorus in
criticizing Facebook for failing to police its platform. They are
also still wary of Facebook's video-ad products after the company
disclosed a series of mistakes in the way it calculated advertising
performance starting in the fall of 2016. Facebook accounted for
about 17% of the global digital-ad market last year, behind
Alphabet Inc.'s Google, which accounted for 32%, according to data
from eMarketer.
The issues have compelled Facebook executives, including its
ever-optimistic chief Mark Zuckerberg, to look inward and
acknowledge the platform needs to change even at the expense of
near-term profitability.
Facebook last fall outlined plans to double the number of
employees and contractors that handle safety and security issues to
20,000 by the end of 2018. And earlier this month, Facebook said it
would start favoring posts that sparked discussion among users at
the expense of news, video and other types of content that
typically perform well in its news feed but encourage the kind of
passive use of Facebook's platform that the company is trying to
discourage.
It remains unclear whether these moves will help the company
repair its image among users and advertisers as well as stave off
further regulation. Some analysts say their research shows many
Facebook users in the U.S. are already starting to spend less time
on the site. The last time Facebook provided a global figure for
time spent on the site, in April 2016, it said users collectively
spent 50 minutes per day on Facebook, Instagram and Messenger.
According to a recent Pivotal Research analysis of Nielsen data,
Facebook's U.S. users spent 7% less time on the site in August 2017
and 4.7% less time in September 2017.
Tech rivals, including Amazon.com Inc., are starting to encroach
on Facebook's territory in digital advertising.
And there are broader, more existential challenges. Last fall,
several U.S. lawmakers raised the prospect of further regulating
Facebook after the company disclosed that Russian-backed actors had
used its tools to foment U.S. social divisions during and after the
2016 presidential campaign. Last week, at an event at the World
Economic Forum in Davos, Switzerland, the billionaire George Soros
said Facebook and Alphabet Inc. have far-reaching consequences for
the health of democracy.
Facebook itself acknowledged the risks in a blog post this month
that noted social media amplified both good and bad intentions.
For now, the intensifying debate over Facebook's future doesn't
appear to have undercut the company's financial performance.
Facebook's results surpassed analyst expectations of $1.94 per
share, excluding the charge, and revenue of $12.55 billion,
according to FactSet. During Wednesday's call, Facebook executives
said the average price per ad rose 43% in the fourth quarter while
total supply rose just 4%.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com
(END) Dow Jones Newswires
January 31, 2018 18:33 ET (23:33 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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