Facebook’s rise in profits, users shows resilience after scandals

Facebook Inc. shares rose on Wednesday after the social network reported revenue that beat Wall Street estimates, showing no initial impact on its lucrative ad business from a scandal over the handling of personal data.

Shares traded up 4.6 per cent at $167 US, paring a month-long decline that began with Facebook’s disclosure in March that consultancy Cambridge Analytica had harvested data belonging to millions of users.

The Cambridge Analytica scandal, affecting up to 87 million users, generated calls for regulation and for users to leave the social network, but there was no sign that advertisers cared.

“Everybody keeps talking about how bad things are for Facebook, but this earnings report to me is very positive, and reiterates that Facebook is fine, and they’ll get through this,” said Daniel Morgan, senior portfolio manager at Synovus Trust Company. His firm holds about 73,000 shares in Facebook.

Facebook’s quarterly profit beat analysts’ estimates, as a 49 per cent jump in quarterly revenue slightly outpaced a 39 per cent rise in expenses from a year earlier. The mobile ad business grew on a major push to add more video content.

Facebook said monthly active users in the first quarter rose to 2.2 billion, up 13 per cent from a year earlier and matching expectations, according to Thomson Reuters I/B/E/S.

The company reversed last quarter’s decline in the number of daily active users in the United States and Canada, saying it had 185 million users there, up from 184 million in the fourth quarter.

The results are a bright spot for the world’s largest social network amid months of negative headlines about the company’s handling of personal information, its role in elections and its fuelling of violence in developing countries.

Facebook, which generates revenue primarily by selling advertising personalized to its users, has demonstrated for several quarters how resilient its business model can be as long as users keep coming back to scroll through its News Feed and watch its videos.

Facebook said it ended the first quarter with 27,742 employees, an increase of 48 per cent from a year earlier.

Chief executive Mark Zuckerberg, who has said he will sacrifice Facebook’s profit margin for the sake of long-term health, said in a statement that Facebook was “investing to make sure our services are used for good.”

Net income attributable to Facebook shareholders rose in the first quarter to $4.99 billion US, or $1.69 per share, from $3.06 billion US, or $1.04 per share, a year earlier.

Analysts on average were expecting a profit of $1.35 per share, according to Thomson Reuters I/B/E/S.

Total revenue was $11.97 billion US, above the analyst estimate of $11.41 billion US.

Tighter regulation could make Facebook’s ads less lucrative by reducing the kinds of data it can use to personalize and target ads to users, although Facebook’s size means it could also be well positioned to cope with regulations.

Facebook and Alphabet Inc’s Google together dominate the internet ad business worldwide. Facebook is expected to take 18 per cent of global digital ad revenue this year, compared with Google’s 31 per cent, according to research firm eMarketer.

The company said it was increasing the amount of money authorized to repurchase shares by an additional $9 billion US. It had initially authorized repurchases up to $6 billion US.

Facebook shares closed at $185.09 on March 16, the day that the Cambridge Analytica scandal broke after the bell on a Friday. In the days immediately afterward, the company lost more than $50 billion US in market value.

Even if the company’s flagship social network, Facebook, suffers large reputational damage among users or advertisers, it still owns three more of the most popular smartphone apps in the world: Instagram, Messenger and WhatsApp.

SOURCE: CBC.ca

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