Facebook's Earnings Are a Bright Spot After an Otherwise Dismal First Quarter
The Cambridge Analytica scandal arrived too late in the quarter to weaken the tech giant's financial performance or user count.
Despite a massive data breach scandal that landed CEO Mark Zuckerberg in the hot seat for two days of congressional hearings earlier this month, Facebook this week reported strong first quarter earnings that exceeded analysts’ expectations.
For the first quarter of 2018, Facebook generated $11.97 billion in revenue, exceeding forecasts of $11.41 billion. This jump is attributed primarily to ad sales, which increased 50 percent year over year.
The reality is, the revelation that Cambridge Analytica improperly accessed 87 million users’ data emerged in mid-March, and the quarter came to a close just two weeks later, so it had little bearing on the company’s financial performance, interest from advertisers and user base.
Before the Cambridge Analytica news broke, the narrative of Facebook as an ethically bankrupt company was already well established. The March issue of Wired magazine featured a doctored photo of Mark Zuckerberg, depicting his face as battered and bruised. The company continues to face scrutiny for enabling the spread of misinformation and propaganda, psychologically manipulating users to spend an excessive amount of time on the platform (and taking a toll on their mental health in the process), disadvantaging journalistic publishers and more.
In January, Facebook announced changes to its news feed algorithm to prioritize content from users’ friends and families over that posted by brands and publishers. But this shift, too, did not significantly dissuade advertisers from signing deals with the company, despite warnings that engagement might drop as a result and that people might spend less time on Facebook, with the goal of making time on Facebook “time well spent.”
Despite a movement to #DeleteFacebook by everyone from Elon Musk to WhatsApp founder Brian Acton within the past month or so, Facebook also has gained users over the past quarter. (Again, there was about a two-week period between this development and the end of the quarter.) The company’s monthly and daily active user counts both increased by 13 percent over Q1 2017 totals (2.2 billion and 1.45 billion, respectively). This jump followed a 1 million user decline in the U.S. and Canada in Q4 2017.
It might take another quarter for all of the controversies to catch up with Facebook. Next on the horizon is the European Union’s impending enforcement of the General Data Protection Regulation (GDPR), which will take effect May 25. However, on this week’s earnings call, Facebook CFO David Wehner and COO Sheryl Sandberg stated that they don’t expect the company’s revenue to suffer much due to either the Cambridge Analytica scandal or GDPR, though they admitted user counts could dip slightly.
A few one-time events also influenced Facebook’s quarterly results, from currency fluctuations to a $130 million boost from an accounting change with Instant Articles. Stock buyback and tax rates also came into play.
Together, Facebook and Google make up more than half of the U.S. advertising market, and in the first quarter of this year, Google reported $26.6 billion in ad revenue (compared with $31.2 in total revenue for the period). Both Google parent company Alphabet and Facebook reported favorable earnings this week, but they both expect increased expenses throughout the rest of the year. In the wake of Cambridge Analytica, one major expense for Facebook will be adding about 20,000 workers to strengthen user security and privacy.
Farther down the road, Facebook executives have discussed opportunities to monetize the messaging platforms Facebook owns, from Messenger to WhatsApp to direct messages within Instagram. Increasingly, the company expects that businesses and individuals will complete transactions within these mediums, and that advertising will increasingly make its way into them.
“I think what you’re going to start to see are people interacting with Pages that you follow, Pages on Facebook or Instagram,” Zuckerberg said during the call this week. “You see content from that Page, and you can click through to a message thread, and then you can either get customer support or complete a transaction or do a follow-on transaction, and that will be very valuable for businesses.”
Another promising medium is Instagram Stories and WhatsApp Status -- the ephemeral photo/video montages users upload from their accounts. This week, Zuckerberg noted that WhatsApp Status is more widely used that Instagram Stories, though ads run only against Instagram Stories so far.Related video: How to Launch a New Product or Service Using Facebook Ads