Facebook reports strong Q3 results, but shares fall on 2018 outlook

Facebook Inc. (NASDAQ: FB) reported its third quarter earnings and beat analysts’ estimates, but shares fell at Thursday’s open after the company provided its expense outlook for the 2018 fiscal year.

Shares surged momentarily reaching an all time high after the closing bell on Wednesday, but fell shortly after. Shares were down 2.5 percent during trading hours on Thursday.

For the third quarter, Facebook reported total revenue of $10.3 billion, up 47 percent year over year, and beating analysts’ estimates of $9.84 billion. The company reported an EPS of $1.59, up 77 percent year over year, and beating analysts’ estimates of $1.28.

Facebook drew 98 percent of its revenue from advertisements, as ad revenue grew 49 percent year over year. Mobile advertising generated 88 percent of ad revenue, and is up 84 percent year over year.

Daily active users and monthly active users both grew 16 percent year over year. Daily users grew 1.37 billion on average, while monthly users grew to 2.07 billion.

Although the social media giant had reported its usual rapid growth rate, shares began to fall after Mark Zuckerberg, CEO and founder of Facebook, announced the company’s plan to increase expenses to combat abuse by increasing security.

He said in the conference call that he expects Facebook expenses to increase anywhere from 45 to 60 percent for the 2018 fiscal year, or outpace expected sales.

“We're serious about preventing abuse on our platforms. We're investing so much in security that it will impact our profitability. Protecting our community is more important than maximizing our profits." said Zuckerberg.

"I am dead serious about this," Zuckerberg added in the conference call.

The increase in security comes after Facebook, along with other tech giants, Amazon and Twitter, testified before Congress about the Russian ads meddling with the U.S. 2016 Presidential elections. Facebook also said that the ads possibly reached over 126 million Americans.

Colin Stretch, Facebook’s general counsel, represented the company before the committee and said that Facebook has a team of 10,000 employees who are dedicated to security and safety, but then said that the company will look to double the workforce.

Even with the expected increased expenses, analysts believe that the security increase will only benefit the company in the long run, but will impact it very shortly. Now, many analysts have either remained or begun to change to a bullish position for Facebook, while also raising price targets.

Credit Suisse, Jefferies, SunTrust, Citi, Morgan Stanley, and other analyst firms have all rated Facebook bullish. Some firms have raised their price targets, such as Morgan Stanley raising it to $200 from $195 and Jefferies raising it from $215 to $225.

Facebook has acknowledged that its growth rate is slowing down, but now the company is shifting its focus to increase user engagements with videos and its new subscription platform, which can generate even more profits. With the 16 percent increase of daily users, this positions Facebook to reach its user engagement expectation.

Leave a Comment