Facebook misses user number target as revenue growth slows

Facebook beat analysts' profit estimates on Tuesday but missed targets for growing monthly users, and reported its slowest revenue growth in about six years.

The social network is keeping costs in check better than some investors anticipated but is facing challenges growing users, causing shares to swing in both directions after the third-quarter results.

Shares of Facebook were up about 3 per cent to $146.22 (€128.89) after initially falling as much as 5 per cent following the bell.

The results are a sign that privacy scandals, data breaches and other problems continue to take a toll on the world’s largest social media company.

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Third-quarter revenue came in at $13.73 billion, compared to the $13.8 billion analysts estimated. Monthly active users totalled 2.27 billion. Three analysts surveyed by Bloomberg expected 2.28 billion, on average.

The Menlo Park, California-based company reported profit of $1.76 a share. Analysts were looking for $1.47, according to data compiled by Bloomberg.

Facebook earlier this year warned that revenue growth rates would decline in the third and fourth quarters. The results on Tuesday confirmed that warning.

The company's flagship product, the Facebook social network, has reached a saturation point in terms of growth, especially in the US and Europe.

The new users Facebook brings on in other parts of the world are in less-lucrative advertising markets. The company has warned it will need to increase spending, as it focuses on other, more experimental bets, such as messaging services WhatsApp and Messenger.

Viral misinformation

On top of those concerns, advertisers have been grappling with Facebook’s impact on society. Facebook has been the platform of choice for those aiming to spread viral misinformation, which has contributed to political upheaval around the world.

"Perhaps brand advertisers are holding back on spend due to safety and security concerns on the platform as of late," Michael Nathanson, an analyst with MoffettNathanson LLC, wrote in a note to investors before the results.

Facebook’s spending has ballooned as it tries to fortify itself against fraudsters and hackers, and as it invests in more engaging content such as video.

Facebook said ad sales were affected by unfavourable foreign exchange rates. Quarterly profit of $5.14 billion, or $1.76 per share, was up 9 per cent from the same period last year and above the average per-share estimate of $1.48.

As Facebook user growth has tapered off, its ad sales had continued to surge as it found ways to better target ads to draw clicks and views.

With the trend wearing off and the company both tweaking its services and spending more to rehabilitate its image among consumers, the company warned in July that revenue and operating margin would grow slower than they have in years.

Total expenses

Total expenses in the third quarter surged to $7.95 billion, up 53 per cent compared with a year ago.

Its reputation has suffered from a data breach affecting 29 million users in September and a privacy scandal involving a British political consulting firm in March.

It also has been rocked by domestic and international information warfare on its services, including WhatsApp and Instagram, and a wave of executive departures.

Still, the company has managed to gain some users. The company said 2.6 billion users interact with at least one of its apps each month, up from 2.5 billion when it released the figure for the first time last quarter to emphasise that its potential audience for advertisers is unrivalled in size.

Monthly and daily users of the main Facebook app compared with last quarter were up 10 per cent to 2.27 billion and up 9 per cent to 1.49 billion, respectively. Estimates were for 2.292 billion and 1.508 billion, according to Refinitiv averages. – Reuters and Bloomberg