Please ensure Javascript is enabled for purposes of website accessibility

Facebook's Wild Ride Continues

By Danny Vena - Feb 8, 2018 at 8:46AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Facebook continued to address controversy, while ad revenue continued its torrid growth.

Investors in Facebook, Inc. (META -0.39%) have learned to face two separate and distinct realities. First, the company has made a habit of blowing past analysts' financial expectations seemingly quarter after quarter -- and investors don't seem to mind. Second, and of greater concern to investors, is that the company has become a lightning rod for any number of public missteps and societal trends.

Issues such as fake news, terrorist communication on its site, political ads bought by foreign operatives, and video of crimes posted on the platform have all cast the company in a negative light.

Those two realities were in full view again when Facebook released its fourth-quarter 2017 financial report.

Facebook "Thumbs Up" logo on street sign in front of HQ.

Facebook's ad performance shines. Image source: Facebook.

Massive growth

For the just-completed quarter, Facebook generated revenue of $12.972 billion, up 47% year over year, and soaring past analysts' consensus estimates of $12.55 billion. The company's operating profit spiked 61% and operating margin grew to 57% compared with 52% in the prior-year quarter. Net income grew an impressive 20% year over year to $4.268 billion, producing diluted earnings per share of $1.44.

Facebook took a one-time charge to increase its provision for income taxes of $2.27 billion as the result of recently enacted tax legislation. Adjusting for the impact of this move produced earnings of $2.21 per share, eclipsing the $1.94 per share analysts expected. 

Mobile advertising revenue grew to a monstrous $11.37 billion, up 57% year over year, and now accounts for 89% of the total, up from 84% in the prior-year quarter. The average price per ad was up 43%, while ad impressions grew 4% year over year. Average revenue per user worldwide grew to $6.18, up 28% over the same quarter last year.

Focusing on the user experience

The social-media platform saw monthly active users grow to all-time highs of 2.13 billion, up 14% over the prior-year quarter, while daily visitors to the site grew to 1.4 billion, also up 14% year over year. WhatsApp crossed a milestone, as users exceeded 1.5 billion each month, while Instagram exceeded 25 million business profiles, up from 15 million in July. Stories on Instagram has daily users exceeding 300 million.

CEO Mark Zuckerberg revealed that the company had made changes to the platform's news feed, showing fewer viral videos, and "prioritizing meaningful social interactions over passive consumption of content." These changes had users spending less time on the platform every day. In a prepared statement, Zuckerberg said: "In total, we made changes that reduced time spent on Facebook by roughly 50 million hours every day. By focusing on meaningful connections, our community and business will be stronger over the long term." 

Zuckerberg also said he believes that some measures of engagement would decline over the short term, estimating that time spent on Facebook declined 5% during the fourth quarter. He said the company was working toward "preventing false news, hate speech, and other abuse" and would be making greater investments in "both people and technology."

As the result of these investments, total expenses will grow 45% to 60% in 2018 compared with last year. Zuckerberg also said spending would "significantly impact our profitability" but over the longer term would "build a stronger community." The company expects capital spending between $14 billion and $15 billion in 2018.

Looking ahead

Facebook believes that creating a more positive experience for users will result in "more monetization opportunities." While investors were initially concerned about the decrease in time spent, Zuckerberg said: "The most important driver of our business has never been time spent by itself. It's the quality of the conversations and connections."

Facebook has a lot of work ahead to repair the damage done to its image in recent months. The company appears to be taking steps to do just that, and while it may affect Facebook's profitability in the short term, it will benefit the business in the long term.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$169.49 (-0.39%) $0.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.