Facebook reports better-than-expected Q3 results but shares fall on 2018 expense forecast

Key Points
  • Facebook shares fell as much as 2 percent in after-hours trading after CFO David Wehner said 2018 operating expenses will rise between 45 percent and 60 percent
  • Adjusted EPS: Facebook reported third-quarter earnings of $1.59 per share, more than the $1.28 per share consensus estimate from Thomson Reuters
  • Revenue surges 47 percent to $10.3 billion, more than expectations of $9.84 billion
Facebook beats on top and bottom lines

Facebook reported third-quarter profit and sales that topped Wall Street expectations, but its shares fell after it said on a conference call that 2018 expenses would rise 45 percent to 60 percent, or faster than expected sales.

After trading as high as $185 a share soon after the results were released, the stock fell as much as 2 percent, to near $179, after the company issued its initial 2018 expense forecast.

Facebook shares have risen more than 50 percent this year.

Here's the key data:

  • EPS: $1.59 per share, more than the $1.28 a share expected.
  • Revenue: $10.3 billion, up 47 percent and more than $9.84 billion expected
  • MAUs: 2.07 billion versus 2.06 billion expected

Facebook CEO Mark Zuckerberg warned that protecting the site from those wanting to spread fake news and hate speech will drive costs higher.

"We're serious about preventing abuse on our platforms. We're investing so much in security that it will impact our profitability," Zuckerberg said.

On a conference call to discuss the results, he added that protecting Facebook's community is "more important" than boosting profit.

The company said yesterday it would double to 20,000 the number of workers dedicated to keeping fake news and hate speech off its sites by the end of next year.

CFO David Wehner said on the same call that 2018 operating expenses will rise significantly as the company pays more for security and original content.

Capital expenditures will double next year, Wehner said.

More than 6 million advertisers

For the quarter ended Sept. 30, online marketers bought more Facebook ads to target messages at mobile internet users.

Facebook's ability to target digital ads at users based on their "likes" and other online behavior is so effective that some in Congress want to regulate its ability to sell political advertising.

Third-quarter ad sales rose 49 percent to $10.1 billion, while mobile sales rose to $8.9 billion, or 88 percent of all sales.

The average cost of an ad rose 35 percent, Wehner said, while total ad impressions were up 10 percent from a year ago.

Ad prices will have more impact on future ad revenue than the number of ads Facebook sells, Wehner told investors and analysts on the call.

Facebook COO Sheryl Sandberg said on the conference call that Facebook now has more than 6 million advertisers, while the company's Instagram service has more than 2 million.

Monthly average users rose 16 percent from a year ago, to 2.07 billion.

The company's operating margin, a key measure of profit, widened to 50 percent of revenue from 44 percent a year ago, even though head count rose 47 percent to 23,165.

Net income surged to $4.7 billion from $2.63 billion a year earlier.