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Russia Controversy Has no Impact on Facebook

Posted on Friday, Nov 3rd 2017


If anyone expected the recent Russia scandal regarding the US election to hurt the profitability or revenue prospects for Facebook (NASDAQ: FB), they couldn’t have been more mistaken.  In the recently reported quarterly performance, Facebook continued to shatter all market expectations, yet again.

Facebook’s Financials

Facebook’s Q3 revenues grew 47% over the year to $10.3 billion, ahead of the market’s estimates of $9.84 billion. EPS of $1.59 was also significantly ahead of the Street’s projections of $1.28 for the quarter.

By segment, advertising revenues grew 49% over the year to $10.14 billion. Revenues from payments and other fees fell 5% to $186 million. Facebook’s payment revenues have been on the decline for a few years now as the usage of Facebook on desktop continues to shrink.

Among operating metrics, daily active users grew 16% over the year to 1.37 billion. Monthly active users improved 16% to 2.07 billion. Mobile advertising revenue accounted for 88% of advertising revenue for the third quarter, compared with 84% a year ago. The average cost of an ad grew 35% and total ad impressions were up 10% over the year. Facebook ended the quarter with more than 6 million advertisers, and Instagram service had more than 2 million.

Facebook’s Advertising Growth

Facebook continues to invest in video advertising. Recently, it introduced a “Watch” section on its main site to display video shows and series. The Watch tab hosts videos in a separate section of the website and advertisers can purchase standalone ads or mid-roll ads that run in the middle of a video. Initial results have been impressive as more than 70% of ad breaks are being viewed to completion with the sound on. Finally, like Snap, it added ephemeral video postings on Instagram that come to the app daily and vanish.

Facebook’s Enterprise Initiatives

Besides video, Facebook has been investing in other services as well. Within messaging, it is now starting to test business features that will simplify how people connect with businesses through WhatsApp. It rolled out Marketplace to Canada and 17 countries across Europe so that people can discover, buy, and sell things in their local communities. And finally, within Workplace, it is helping companies connect their own teams internally through their own versions of Facebook.

Facebook’s Security Investment

Facebook has been embroiled in controversy surrounding the Russian involvement in the US elections. Earlier this week, it testified that Russia’s campaign to meddle in the US election reached 126 million people out of the more than 213 million US subscribers. 29 million people were directly served 80,000 posts linked to Russian actors and the comments, shares, and likes on these posts helped those comments reach out to an additional 97 million people. Besides Facebook, Instagram also saw similar activity. Facebook deleted 170 Instagram accounts, which saw 120,000 content articles. It had also revealed that more than 10 million ad views were recorded for ads purchased by the Kremlin-linked Internet Research Agency.

To thwart any more of such controversies, Facebook plans to increase its security and intelligence spending. Earlier this week, it announced that it planned to double the number of people working on safety and security to 20,000. Overall, Facebook plans to increase its spending by 60% next year to account for higher security costs and investments in video content. It also plans to double its capital expenditure next year as it invests in R&D and Artificial Intelligence initiatives. The spending will impact its profitability, but the market isn’t too worried.

The stock this week hit a record high of $182.90 with a market capitalization of $530 billion. The stock has been climbing from the 52-week low of $113.55 it had fallen to in December last year.

Photo Credit: Marco Paköeningrat/

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