Facebook revenues rise 47% to $10.3bn in record third quarter

Facebook reported another quarter of record sales, underscoring how far removed the social network's business prospects are from the raging public debate about Russian political ads on its platform.

Revenue rose 47 percent to $10.3 billion in the third quarter, compared with the $9.84 billion analysts expected on average, according to data compiled by Bloomberg.

Net income excluding some costs grew to $4.71 billion, or $1.59 a share, the Menlo Park, California-based company said Wednesday in a statement. Analysts had estimated $1.28 a share.

Facebook's results painted a picture of its growing power and influence on the same day its general counsel testified in Congress about how Russian actors used its social-media sites to spread political discord through paid ads and posts.

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The $100,000 in advertising spending being investigated by lawmakers pales next to the continued boost for the business thanks to growing demand for mobile marketing, especially via video. Meanwhile, Facebook continues to add users, with 1.37 billion people now logging on daily.

Despite all of Facebook's critics, including angry US senators, advertisers who question the company's metrics and regulators who want to protect privacy in Europe, "Facebook can still continue to thrive because its properties have such vast reach and usage,'' said Brian Wieser, an analyst at Pivotal Research.

Security investment

Facebook chief executive Mark Zuckerberg said the technology giant was serious about blocking abuse, and cautioned that profit may be affected by the additional investment in security the company has promised. The company said earlier this week that it planned to double the number of people working on safety and security to 20,000.

“Protecting our community is more important than maximising our profits,” Zuckerberg said. It was a rare departure from companies’ regular statements on their earnings reports.

Zuckerberg’s re-evaluation of Facebook’s societal impact is the biggest internal reckoning for the social-media giant since the months following its initial public offering, when the company was struggling to make money on mobile phones.

Still, Facebook is capturing most of the growth in digital advertising, alongside Alphabet's Google, because of its vast demographic knowledge about its users, which on a monthly basis top 2 billion.

Advertisers for both Facebook and Google “showed increasing intent to spend more on those sites,’’ according to research by Mark Mahaney, an analyst at RBC Capital Markets. Alphabet also beat analysts’ estimates when the company reported earnings last week.

Facebook shares rose about 1.2 per cent in extended trading. The stock gained 1.4 per cent in regular trading before the report to a record $182.66.

Video advertising

Facebook's strategy centres on getting people to spend more time on its products, including Instagram and Messenger, and then making money off of those users through advertising.

On its main social network, Facebook has added a "Watch" section for video shows and series, which is a sort of friend-based version of YouTube. Zuckerberg has said the company's business prospects depend on its success in video advertising, which could be bolstered by the new section, where the company is paying to develop higher-quality content.

On the Instagram photo-sharing application, which now has more than 800 million users, the company has been adding ephemeral video postings, similar to Snapchat, so more people come to the app daily knowing the content won’t be there later.

On its Messenger site, the chat app with at least 1.3 billion monthly users, the company is adding partnerships that let businesses talk directly with customers, with the goal of getting the consumers hooked on the app to plan their lives. Future initiatives include a not-yet-announced home video-chat device, which will help Facebook compete in that market with Google and Amazon.com.

Of all those business plans, Instagram is the only one with an advertising strategy investors are familiar with. Facebook investors have pushed the shares to records on optimism for untapped future growth, but the company also consistently faces questions about the newer initiatives.

“It’s too early to say whether Facebook has come up with a winning formula” on video advertising, according to eMarketer analyst Debra Aho Williamson.

“Efforts to establish Messenger as a customer-service platform are moving slowly,” she added, while WhatsApp, another Facebook chat app with more than 1 billion users, is “moving even more slowly”.

Even so, the experiments show Facebook has room to grow beyond its current dominance, with eMarketer expecting Facebook to have a 17 per cent share of the worldwide digital-ad market this year, second only to Google.

Congressional hearings

Facebook sent general counsel Colin Stretch to Washington to testify at three separate Congressional hearings on Tuesday and Wednesday.

The executive spent hours reassuring senators and representatives that Facebook was committed to preventing election manipulation by foreign powers in the future - which wasn’t enough for the politicians, who pinpointed that the company doesn’t currently have the technology and may never be able to keep up with the threat.

Google and Twitter executives also appeared at the hearings, but Facebook got the brunt of the questions and the criticism after revealing that more than 126 million people may have seen politically divisive posts from the Russian Internet Research Agency.

Some lawmakers have proposed legislation that would require the companies to disclose the source of campaign ads online. The tech giants have long resisted federal regulation, but in recent weeks have unveiled steps they’re taking independently to increase the transparency of political and other ads.

(Bloomberg)