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Abu Dhabi, UAEWednesday 26 September 2018

Facebook shrugs off Russia concerns as its posts 'phenomenal' results

Social media juggernaut in hot water over suspected political manipulation using its service but revenues and income soars, along with share price

Facebook founder Mark Zuckerberg. Brian Snyder/Reuters
Facebook founder Mark Zuckerberg. Brian Snyder/Reuters

Facebook faced harsh criticism in Washington over its failure to prevent Russian operatives from using its platform for election meddling, but the earnings report it issued hours later showed just how insulated its business remains from political risk.

The social network said its quarterly profit soared 79 per cent and revenues were up nearly 50 per cent in the third quarter as marketers poured money into Facebook's advertising offerings, whose power to target and influence users has actually been showcased by the election scandal.

The chief executive Mark Zuckerberg condemned Russia's attempts to influence last year's election through Facebook posts and advertisements designed to sow division, and repeated his pledge to ramp up spending to confront the problem.

He said spending would include 10,000 additional people to review content on the network, although based on past practice many of those people will be contractors. The spending would hit profits, Facebook said, with expenses expected to grow by 45 per cent to 60 per cent next year.

"What they did is wrong, and we are not going to stand for it," Mr Zuckerberg said of the Russians.

The company's share price, which hit a record US$182.90 earlier, initially rose in after-hours trading, but later fell into negative territory on discussion of the higher spending. Shares have gained almost 60 per cent this year.

"While the investigations into Russian activity on the platform have been getting a lot of attention, they're not detracting from Facebook's power as an ad platform," said the analyst Debra Aho Williamson of the research firm eMarketer.

The political storm in the United States over how Facebook, Twitter and Alphabet's Google handle false news stories and political manipulation of their services gathered strength this week as three separate congressional committees held hearings.

Mr Zuckerberg did not appear at the hearings. But policymakers threatened tougher regulation and fired questions at Facebook general counsel Colin Stretch, excoriating the company for being slow to act and slow to share what it knew with Congress.

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The chief executive told analysts that legislation to force disclosure of election ads "would be very good if done well".

In a series of disclosures over two months, Facebook has said that people in Russia bought at least 3,000 US political ads and published another 80,000 Facebook posts that were seen by as many as 126 million Americans over two years. Russia denies any meddling.

Facebook's total advertising revenue rose 49 per cent in the third quarter to $10.14 billion, about 88 per cent of which came from mobile ads.

Analysts on average had expected total ad revenue of $9.71bn, according to the data and analytics firm FactSet.

Facebook in the third quarter gave advertisers for the first time the ability to run ads in standalone videos, outside the Facebook News Feed, and the company is seeing good early results, said the chief operating officer Sheryl Sandberg told analysts.

"Video is exploding, and mobile video advertising is a big opportunity," Ms Sandberg said.

More than 70 per cent of ad breaks up to 15 seconds long were viewed to completion, most with the sound on, she said.

Facebook executives, though, declined to give details on the performance so far of Watch, a video tab the company rolled out two months ago. "It's too early to be talking about any stats there," said the chief financial officer Dave Wehner.

Mr Zuckerberg said Facebook would be spending heavily in making the Watch tab a place where "people want to talk and connect around", rather than a spot to passively consume programmes.

The 49 per cent increase in total ad sales in the latest quarter compares with a 47 per cent rise in the prior quarter and a 51 per cent jump in the first quarter.

Facebook has been warning for more than a year about reaching a limit in "ad load", or the number of ads the company can feature in users' pages before crowding their News Feed.

Advertisers seem unfazed, though, spending heavily as the social network continues to attract users. The average price per ad rose 35 per cent.

The nearly 50 per cent jump in ad revenue "is phenomenal, especially when for the past few quarters they've been trying to bring that expectation way, way down. Yet it keeps going up," said the Tigress Financial Partners analyst Ivan Feinseth.

Of the Russia scandal enveloping Facebook publicly, Mr Feinseth said: "In the bigger picture, I don't think it's a really big factor."

The company's performance was strong in comparison with smaller social media firms Snap and Twitter, said the Wedbush analyst Michael Pachter.

"Facebook grew revenues by $3.3bn year-over-year for the quarter. This is more than Twitter and Snapchat generate combined for the full year," he said.

Facebook said about 2.07 billion people were using its service monthly, up 16 per cent from a year earlier.

Net income rose to $4.71bn, or $1.59 per share, from $2.63bn, or 90 cents per share.

Analysts on an average were expecting the company to earn $1.28, according to Reuters.

Total revenue increased 47.3 per cent to $10.33bn beating analysts' estimate of $9.84bn, according to Reuters.

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