Facebook's fight to kill fake news may hurt its profit margin

Key Points
  • Zuckerberg said Facebook will be "investing at a much higher level."
  • The company said operating expenses would rise 45 percent to 60 percent in 2018
  • Analysts are expecting Facebook revenue to rise 30 percent next year.
Mark Zuckerberg, chief executive officer of Facebook Inc., speaks during an event in Menlo Park, California.
David Paul Morris | Bloomberg | Getty Images

Facebook CEO Mark Zuckerberg indicated that defending its 2 billion users from fake news, hate speech and other unwanted content may put a serious dent in the company's profit margins.

"I want to be clear about what our priority is," Zuckerberg said on Wednesday after the company reported third-quarter earnings. "Protecting our community is more important than maximizing our profits."

CFO David Wehner later forecast that higher security costs, combined with investments in original video content, would drive up operating expenses between 45 percent and 60 percent in 2018. Sales, meanwhile, are expected to increase 30 percent next year to $51 billion, according to the average estimate of analysts surveyed by Thomson Reuters.

Facebook's stock price, which initially rose after revenue and profit topped estimates, dropped below Wednesday's close when the company revealed its spending plans.

Facebook is under fire for its role in the 2016 election. During three separate congressional committees, executives from Facebook, Twitter and Google were asked about how their platforms were abused by Russian propagandists to influence American voter behavior.

"Russians tried to use our tools to sow mistrust," Zuckerberg said. "We build these tools to help people connect and bring us closer together. And they used them to try to undermine our values. What they did is wrong and we're not going to stand for it."

Here's what Facebook's Russia problem means for the stock
Here's what Facebook's Russia problem means for the stock

Several lawmakers scolded the company this week for not being faster in removing fake news and divisive ads created by a Russian propaganda operation.

On Tuesday, Senator Al Franken of Minnesota hammered the company for its inability to spot political ads that were paid for in Russian currency.

"You had American political ads paid for in Rubles," Franken said. "How could you not connect those dots?"

Zuckerberg said the company understands the problem but faces a steep challenge in solving it. He admitted that the company's artificial intelligence software isn't yet good enough to protect users from unwanted content.

"We need AI and people," he said.

Facebook said on Tuesday that it will double the number of people dedicated to safety and security to 20,000 by the end of next year. The company is also investing in engineering and technology expertise to improve its AI.

"We're building AI to go after more different areas of content," Zuckerberg said. "Al will make the product better over the long term, but we'll incur expenses a lot sooner."