technology

Facebook Surges After Sending Upbeat Message to Wall Street

Updated on
  • Social network says it’s investing in building new products
  • Sales top estimates, proving resilient in face of data scandal
Digital Content Next CEO Jason Kint says Facebook "users didn’t go away."

Facebook Inc.’s message for investors is clear: the business is healthy and growing.

In its first-quarter earnings report, the social network said revenue jumped 49 percent, beating analysts’ estimates, as the digital-advertising business charged ahead. While Facebook is spending to fix big problems like election manipulation and privacy -- issues that have dealt blows to the company’s image -- “we’re going to invest even more in building the experiences that bring people together on Facebook in the first place,” Chief Executive Officer Mark Zuckerberg said on a conference call Wednesday.

Shares in Facebook were up 6.3 percent to $169.83 at 5:25 a.m. premarket in New York Thursday. The stock has dropped about 14 percent since the new reports about data-privacy lapses emerged in March.

On the call, executives used the word "proud" five times. “We’re proud of the ads model we built,” Chief Operating Officer Sheryl Sandberg said. By tracking user activity, the company’s marketing business can serve up relevant promotions and make sure Facebook remains free for its users. And there are plenty more ways for Facebook’s advertising business to expand further, such as through the photo-sharing app Instagram.

After a month of turmoil and scrutiny from lawmakers, during which the company has struck a contrite tone about lapses in data protection, executives needed to reassure investors about Facebook’s popularity and the strength of its advertising powerhouse. The numbers did most of the work. Quarterly sales rose to almost $12 billion, and monthly user growth also topped estimates. Facebook said it now has 1.45 billion daily users, matching estimates on this key measure of engagement. Shares surged more than 5 percent in extended trading.

The results were “a relief,” said Daniel Ives, an analyst at GBH Insights.

Facebook has spent the past month explaining, apologizing and tweaking its rules after an app developer passed along personal information on as many as 87 million users to Cambridge Analytica, a political consulting firm, which may have failed to delete it. That crisis, which resulted in a #deleteFacebook campaign and a congressional inquiry for Zuckerberg, hit toward the end of the quarter -- so its implications have had little visible impact so far.

“Facebook continues to have a long revenue runway ahead of it,” Mark Mahaney, an analyst at RBC Capital Markets, said in a note to investors. “Marketers continued to spend on the platform at record highs. And we believe actions that lead to revenues speak louder than words.”

The company’s main social network added users in North America, reversing the decline that happened for the first time ever in the fourth quarter. Monthly active users in the U.S. and Canada rose to 241 million, while daily active users climbed to 185 million in the first quarter.

Net income in the first quarter climbed 63 percent to $4.99 billion, or $1.69 a share, topping the $1.35 per share analysts predicted. Capital expenditures reached $2.81 billion in the quarter as Menlo Park, California-based Facebook increases its spending on security, video content and new technologies. The company also said it boosted its stock-buyback program by $9 billion.

Facebook still holds a dominant position in mobile advertising, alongside Alphabet Inc.’s Google. That has let the company increase the price of ads -- Facebook said mobile made up 91 percent of ad revenue in the recent period, compared with about 85 percent a year earlier. The company also has plenty of properties where it’s starting to make more money beyond the main social network, like Instagram, which is expected to reach a billion users this year, and popular chat apps WhatsApp and Messenger.

Still, the company has been rocked internally by the data crisis, which has caused Facebook to launch a review of all of its products and evaluate how much information it should share with app developers, researchers and advertisers. Meanwhile, it’s working to address new privacy rules in Europe, called the General Data Protection Regulation, which Facebook has said could reduce the amount of monthly and daily users from that region.

Facebook made the argument that because GDPR in Europe affects the entire ad industry, it’s difficult to forecast the repercussions -- including on users outside Europe, where Facebook says it’s going to roll out the same protections.

“While we don’t expect these changes will significantly impact advertising revenue, there’s certainly potential for some impact,” Chief Financial Officer David Wehner said.

The company may no longer be able to build products quickly and roll them out without concern for their potential negative impact. Zuckerberg has said that the company failed to take a broad enough view of its responsibility to users. Facebook will be staffing up this year to review potentially damaging content more quickly and better understand possible security threats. And it’s put a hold on introducing some products, including a home speaker device, while it does a deeper security review.

Facebook in January announced that it was tweaking its news feed algorithm to put an emphasis on posts from friends and family, at the expense of viral news and video. That could reduce the amount of time people spend on the site, the company has said.

Wehner declined to give updated numbers for that measure, saying they were no longer as important.

“We’re not really optimizing the business on time spent, but rather the kind of quality of conversations and connections,” he said.

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