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Facebook status update fails to spook investors

Facebook’s shares rose in after-hours trading after its latest results soothed investor fears of a drop-off in user growth.

Its third quarter figures showed a rise in user growth, revenue and profits.

The company had previously warned of an easing in key growth rates for the rest of the year because of several pressures including the rising cost of security protection.

While it missed analysts’ estimates in terms of user growth between July and September, Facebook still achieved 2.27 billion monthly active users while daily active users rose to 1.49 billion from 1.47 billion in the previous three months.

Facebook CEO Mark Zuckerberg speaks during the F8 Facebook Developers conference on May 1, 2018 in San Jose, California. Facebook CEO Mark Zuckerberg deliverd the opening keynote to the FB Developer conference that runs through May 2.
Image: Mark Zuckerberg says Facebook's platforms, which include Instagram and WhatsApp, are continuing to grow

They represented annual rates of growth of 10% and 9% respectively, Facebook said. Profits were up 9% on the third quarter last year at just above $ 5bn.

Total revenue rose 33% to $ 13.73bn – on track with forecasts.

Total costs jumped to almost $ 8bn from $ 5bn in the same period last year when its honeymoon period was nearing its end.

There were fears of falling usage because 2018 has proved the toughest for Facebook after years of stunning growth since its flotation in 2012.

It has had to grapple the fallout from the Cambridge Analytica scandal new data protections for users in Europe.

The company then admitted in late September – at the end of the third quarter – that 50 million accounts had been affected by a security breach.

Costs associated with the protection of users are expected, by analysts, to continue to grow substantially while there are also market rumours Facebook is looking to buy an established cyber security firm to deliver its security promises.

Shares in Facebook, down 20% in the year to date ahead of Tuesday trading, rose almost 3% in the regular trading session on Wall St just before the status update was revealed.

They were over 2% higher in after-hours trading as investors digested Facebook’s figures, which also showed 2.6 billion people now use Facebook, WhatsApp, Instagram, or Messenger.

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But shares later turned negative and swung wildly as company bosses warned in a call with analysts that it was expecting expenses to leap in 2019.

Chief executive Mark Zuckerberg told them that earnings would continue to face pressure as Facebook moved to improve the user experience, particularly in video.

He said 2019 would be a year of “significant investment”, adding there was also a “long road ahead” to improve data security to where Facebook wanted it.

It has been a volatile month for shares worldwide but it has hurt tech stocks more than most.

While the sector is seen as being in the firing line amid President Trump’s trade war with China, it has also been marked as over-valued for years.

But Christopher Rossbach, chief investment officer at J Stern & Co which has Facebook stock within its portfolios, said: “Defying the recent market turmoil and poor sentiment, Facebook delivered a good quarter that should reassure investors.”

He added: “We believe that Mark Zuckerberg and the Facebook management team are taking a prudent and proactive approach to addressing the challenges facing the company and ensuring its future growth.

“We think Facebook’s current share price represents a good opportunity for long-term investors to buy a company that has great prospects for delivering long-term growth and value to investors.”

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If such views are reflected widely, Facebook’s figures could be enough to spark a further fightback for FAANG (Facebook, Apple, Amazon, Netflix and Google) shares on Wednesday – Halloween.

Apple is the final tech major to report its progress in the current earnings season – with those results due on Thursday.

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