Tech

Facebook soars after it crushes earnings, posts record profit

Key Points
  • Daily active users grow in every geographic area, reversing a downward trend in Europe and a plateau in North America.
  • Average revenue per user, or ARPU, crushes analyst estimates, at $7.37 — a 21 percent increase from last quarter, and a 19 percent increase from last year.
  • Facebook and CEO Mark Zuckerberg have been drilling down on the company's Stories feature.
  • Revenue for the December quarter of $16.91 billion marks a year-over-year growth rate of 30.4 percent.
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Facebook posted strong financial numbers for its fourth quarter Wednesday, beating on earnings and revenue and sending shares up more than 12 percent in extended trading. Active user metrics continue to rise, though slowly.

Here's how the company did compared with what Wall Street predicted:

  • Earnings: $2.38 per share, vs. $2.19 forecast by Refinitiv consensus estimates
  • Revenue: $16.91 billion, vs. $16.39 billion forecast by Refinitiv consensus estimates
  • Daily active users: 1.52 billion, vs. 1.52 billion forecast by Refinitiv consensus estimates
  • Monthly active users: 2.32 billion, vs. 2.32 billion forecast by Refinitiv consensus estimates
  • Average revenue per user: $7.37, vs. $7.11 forecast by FactSet

It proved to be a strong financial quarter for Facebook, despite growing public outrage over the company's privacy practices. Earnings per share jumped 65 percent from the year-ago period. Net income totaled $6.88 billion, a record profit for the company and an increase of 61 percent from the year-ago quarter.

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Facebook beats expectations on top and bottom line

Facebook's average revenue per user, or ARPU, crushed analyst estimates, at $7.37 — a 21 percent increase from last quarter and a 19 percent increase from last year.

The company's next report could be shakier, though. Facebook is expecting revenue deceleration for the first quarter of 2019 and projecting full-year expenses to jump between 40 percent and 50 percent from the full year of 2018.

Community metrics

Daily active users and monthly active users during the December quarter exactly matched expectations, each jumping 1.8 percent quarter over quarter, and 8.6 percent year over year. The increases represent slower growth than in recent quarters but still indicate that the company's data scandals and public privacy disclosures haven't dinged engagement too drastically.

Daily active users grew in every geographic area, reversing a downward trend in Europe and a plateau in North America. Monthly active users stayed flat in North America but jumped in every other region — posting particularly strong growth in Asia-Pacific.

Facebook will soon stop reporting user metrics for the core Facebook platform, Chief Financial Officer David Wehner said on the company's earnings call. Instead the company will start reporting "family metrics."

"We believe these numbers better reflect the size of our community and the fact that many people are using more than one of our services," Wehner said. "For the time being we will continue to disclose both set of numbers, but over time we expect family metrics will play the primary role in how we talk about our company, and we will eventually phase out Facebook-only community metrics."

That makes some sense for Facebook, given the impressive growth of WhatsApp and Instagram compared with Facebook's core platform. But it's a change not unlike the reporting structure shake-up at Apple that scared investors.

Facebook and CEO Mark Zuckerberg have been drilling down on the company's Stories feature, a Snapchat-like sharing option for temporary photos and videos. Last quarter, Zuckerberg said Stories would become "a bigger medium than Feed has been" and said users across the Facebook family of apps — including WhatsApp and Instagram — post more than 1 billion Stories per day.

Zuckerberg said on the company's earnings call Wednesday that Instagram sees 500 million daily active users in its Stories feature alone, and that Facebook's family of apps sees 2.7 billion monthly active users globally, up from 2.6 billion last quarter.

The company didn't offer Stories user metrics for the core Facebook platform, which has grown more slowly.

Chief Operating Officer Sheryl Sandberg said Facebook counts more than 7 million active advertisers, including 2 million advertisers within Stories.

Rising costs for newer products

The company previously warned its investment in Stories could contribute to slowing revenue growth during the second half of 2019. Third-quarter revenue grew by 32.9 percent year over year, breaking a 12-quarter streak of growth rates above 40 percent.

Revenue for the December quarter of $16.91 billion marks a year-over-year growth rate of 30.4 percent.

Facebook has been dumping cash into its long-form Instagram product called IGTV, its Craigslist competitor called Facebook Marketplace and its dedicated video tab called Facebook Watch. Zuckerberg said on the earnings call users spend an average of 20 minutes a day on the Watch tab. The company expects Watch to surpass 400 million monthly active users in 2019.

The company's payments and other fees revenue, which includes online game purchases and peer-to-peer transactions on the platform, skyrocketed 46 percent quarter over quarter during the fourth quarter to $274 million.

Zuckerberg indicated the company will push further into commerce across its platforms, helping vendors advertise and sell to users.

"An increase in commerce on Instagram, Facebook and WhatsApp, I think is one of the most exciting product opportunities that we have in all of these products and a big business opportunity as well," he said. "People are already doing a lot of commerce activity and are really interested in following brands, and I think making sure that that works and does well is a big deal. But I think there's also a very big opportunity in basically enabling the transactions."

The company is also upping investment in cybersecurity — in the wake of data scandals and content moderation flubs — adding to a projected spike in expenses.

Facebook reported capital expenditures of $4.37 billion for the fourth quarter and of $13.92 billion for the full year 2018 — roughly double the quarterly and full-year capital expenditures it reported this time last year.

It posted free cash flow of $3.32 billion for the fourth quarter, down from $4.15 billion during the third quarter and $5.05 billion in the year-ago quarter.

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