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Abu Dhabi, UAEWednesday 21 November 2018

Facebook feed is out and video in amid slowest revenue growth in four years

CEO Mark Zuckerberg announces new strategy that steers the company away from its famous news feed offering

Facebook CEO Mark Zuckerberg is pointing the platform in a new direction. Reuters
Facebook CEO Mark Zuckerberg is pointing the platform in a new direction. Reuters

Facebook, the world’s largest social media company, fell short of analyst revenue expectations in its third-quarter earnings report, up 33 per cent year-over-year - its slowest growth in four years.

Net income through September 30 was $5.1 billion or $1.76 per share.

The company reported below expected daily active users, shedding one million accounts in Europe and expanding in less profitable but also less saturated markets in Asia as chief executive Mark Zuckerberg turns away from the platform's news feed, the central advertising revenue generator for the company for more than a decade, to focus on new growth opportunities.

The news feed is out, Mr Zuckerberg told analysts, and video is in.

On Tuesday, he said the company planned to invest significantly in 2019 as it focuses on building out new products such as Facebook Watch and Instagram TV while acknowledging it is far behind Google's YouTube in terms of size. Facebook chief financial officer David Wehner said 2019 total expenses will grow 40 to 50 per cent compared to full-year 2018.

Capital expenditure through September 30 was $3.3bn, driven by investments in data centres, servers, network infrastructure and offices.

Facebook estimates that more than 2.6 billion people now use Facebook, WhatsApp, Instagram or Messenger each month, up 10 per cent from a year earlier, but the company’s stock has been battered this year over its role in influencing US politics in the 2016 presidential election, data security and privacy concerns and increasing regulatory requirements in Europe under the EU's General Data Protection Regulation act, which went into effect in May.

At the same time, Facebook chief operating officer Sheryl Sandberg said marketers were not yet comfortable with new video-centric sharing features, a learning curve that will be costly to the company as consumer eyeballs increasingly drift away from the news feed to private messaging that relies heavily on video.

Mr Zuckerberg said on Tuesday: “I want to be upfront that even assuming that we get to where we want to go ... it will take some time and our revenue growth may be slower during that period."

The stories format is popular on the firm's Instagram and WhatsApp, but on its core social network it’s only just starting to gain attention. Still, Mr Zuckerberg thinks this is how users will share information in the future and that the potential opportunity is a far larger one than that which can be gained from the news feed.

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Tuesday’s results bought Mr Zuckerberg some time to pursue the new initiatives, according to Bloomberg analysts.

And time it needs. Facebook recently disclosed more misinformation campaigns by Russia, Iran and domestic actors that came to light after the company began its own internal investigations and hired thousands more employees and outside contractors to ferret out trolls and fake news.

Last March, news broke that user data was shared through app developers to UK political consultant Cambridge Analytica. Mr Zuckerberg testified before Congress on the matter in April and the campaign to restore public trust has been ongoing ever since.

More recently, it disclosed its biggest-ever data breach of search and location check-in histories of 14 million people. Last week, hackers gained access to be able to control about 50 million accounts through the company's "View As" feature.

The breaches reinforce public perception that Facebook is collecting too much personal data and then not storing it responsibly.

Following its third quarter results, Facebook shares rose 3.1 per cent in extended trading, after closing at $146.22 in New York. Earlier this year the company issued a warning that revenue growth rates would decline in the third and fourth quarters, sending shares plummeting but managing expectations for Tuesday’s results.