By Deepa Seetharaman
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 (February 1, 2018).
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 profit, excluding a $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 U.S. tax overhaul.
That financial momentum is now being challenged. In January,
Chief Executive Mark Zuckerberg said he has resolved to fix
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 news feed.
Those changes -- including showing fewer viral videos in the
latest quarter -- reduced the collective time Facebook users spend
on the platform by about 5%, or 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 on average 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 total about 184 million, though it
gained 33 million globally.
David Wehner, Facebook's financial chief, said he expects 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 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
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 has 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 ad agencies have joined the chorus in
criticizing Facebook for failing to police its platform. They are
also still wary of its 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 Mr.
Zuckerberg, to look inward and acknowledge the platform needs to
change.
Facebook last fall outlined plans to double the number of
employees and contractors who handle safety and security issues to
20,000 by the end of 2018.
And in January, 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 minimize.
To improve news quality on its site, Facebook is starting to
rank publisher posts in the U.S. based on user evaluations of
trustworthiness. Facebook has said the change will benefit "broadly
trusted" publications.
On Wednesday, Mr. Zuckerberg referenced The Wall Street Journal
and the New York Times as examples of publications that are both
well-known and generally regarded as "high-quality journalism."
This type of sentiment typically signals content that is "unlikely
to be polarizing, that is unlikely to be false news," he said.
It remains unclear whether these moves will help the company
repair its image among users and advertisers as well as stave off
further regulation.
Analysts say many Facebook users in the U.S. are alreadystarting
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 a day on Facebook, its
Instagram service 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 compared with a year ago and 4.7%
less time in September.
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 election. 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
February 01, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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