Facebook Releases Warning on Future Profitability

By Nimra Noor,
Money and Investing Writer

In its third-quarter 2017 report, released on November 1, the social media giant, Facebook (NASDAQ: FB), is seen having soared profits as it brought in an increasingly healthy advertising revenue growth, according to BBC.

With the revenues of $10.33 billion vs. $9.84 billion expected, Facebook reported an increase of 47 per cent from the year-ago period. Earnings came in at $1.59 per share, vs $1.28 expected, an increase of 77 per cent. The social media company told that it has 1.37 billion daily active users, slightly ahead of expectations of 1.36 billion, and 2.07 billion monthly active users, again more than the expected figure of 2.06 billion.

A significant portion of the total ad revenue is accrued by mobile ad revenues, which have increased from 84 per cent to about 88 per cent in a year time. Additionally, headcount increased 47 per cent from a year ago to 23,165.

With an average of 1.37 billion daily users for September, there is a 16 per cent year-over-year gain. This has simultaneously led to an upturn in the company’s monthly active users by the end of September.

The social media company’s strong revenue growth is captured by its video content and focus on the security. It is these factors in which the management anticipates a much-higher spending in 2018.

Optimistic about video, Chief Executive Mark Zuckerberg said, “Over the next three years, the biggest trend in our products will be the growth of video.

This goes both for sharing, where we’ve seen Stories in Instagram and Status in WhatsApp grow very quickly, each with more than 300 million daily actives, and also for consuming video content.” The recent launch of Watch Tab is an example of the way the company is profiting from on this opportunity. A planned rise in investments in video content to support the new feature is the primary reason for Facebook’s forecast for a 45 per cent to 60 percent year-over-year increase in operating expenses in 2018.

Besides, Facebook has been taking security very seriously as Mr. Zuckerberg was inflamed about Russian entities exploiting Facebook ads in an attempt to influence Americans during the presidential campaign.

He said, “I have expressed how upset I am that the Russians tried to use our tools to sow mistrust. 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 are not going to stand for it.”

Taking into account Facebook’s increased concerns regarding security, it is reported by the social media giant that it would be investing sizably in people and technology to strengthen their system and prevent any kind of abuse.

Therefore, it would be representing a major chunk of the company’s expense growth in 2018, combined with video and long-term initiatives in artificial intelligence and improved connectivity.

Whereas the third-quarter year-over-year ad revenue represents more growth than expected, Facebook plans for a huge increase in spending next year. With an increasing concern for the security and prevention of abuse on Facebook, the Chief Executive of the social media giant said, “Protecting our community is more important than maximizing our profits.”

Facebook reported that the spending would hit profits, with expenses overall expected to grow by between 45 and 60 per cent next year.

 

A version of this article appeared in the Tuesday, November 7th print edition.

Contact Nimra at
nimra.noor@student.shu.edu

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