Facebook (Nasdaq: FB) had a tough 2018 as it dealt with several concerns on privacy, fake news, and emotional well-being of its users. The stock had soared to a record high last summer before it reported a decline. It still hasn’t recovered to its former glory, but 2019 is proving to be more promising so far. Its recent fourth quarter result announcement sent the stock climbing nearly 11% in a single day – making it the biggest single day climb recorded by the company in the last two years.
Facebook’s Q4 revenues grew 30% over the year to $16.91 billion, ahead of the market’s estimates of $16.39 billion. Net income for the quarter came in at a record $2.88 billion. EPS of $2.38 was significantly ahead of the Street’s forecast of $2.18 for the quarter. Average revenue per user also grew 21% from the third quarter and 19% from a year ago to a record high of $7.37, which beat expectations of $7.11.
By segment, advertising revenues grew 30% over the year to $16.64 billion. Revenues from payments and other fees grew 42% to $274 million. Overall mobile advertising revenue now accounted for 93% of advertising revenue, compared with 89% a year ago.
The user results were impressive for the company that has seen a significant backlash in recent years. Daily active users grew 9% to 1.52 billion. In the U.S. and Canada, its daily-active-user count grew to 282 million from 277 million a year ago, and monthly active users grew to 242 million from 239 million.
Overall, there are nearly 2.7 billion people globally using Facebook, Instagram, WhatsApp, or Messenger services every month. Facebook claims that more than 2 billion people use at least one of Facebook’s services every day.
Despite all the issues faced by Facebook last year, it saw revenues grow 37% over the year to $55.84 billion. Advertising revenues grew 38% to $55 billion and payments and other revenues grew 16% to $825 million. Net income for the year grew 39% to $22.1 billion. Adjusted EPS came in at $7.57 for the year compared with $5.39 reported a year ago.
Facebook’s financials may have been strong, but the company continues to battle with several controversies. Recently, there were more concerns when news broke out that Facebook reportedly paid users up to $20 a month if they installed the Facebook Research App that mined all of their phone and web activity. The service was operational on the Apple app and targeted users between the ages of 13 to 35. For the past three years, those who had installed were sharing virtually all data, including emails, private messages, web searches, browsing history, and location tracking with Facebook. This was also a violation of Apple’s iOS platform rules. Post the revelation, Apple revoked Facebook’s Enterprise Certificate, which allowed Facebook to distribute apps without going through the App Store. Facebook claims that this was not a secret data harvesting activity and the users were made aware of this feature as part of the on-boarding activity to receive payment.
This wasn’t the first time that Facebook has had issues with its iOS app. Last year, it had to remove Onavo, its VPN app because it too was harvesting data from other apps, another violation of Apple’s data collection policies.
Besides data security, fake news concerns are still rampant. Recently, fact-checking website, Snopes.com ended its involvement in the Facebook fact-checking program citing concerns that Facebook wasn’t doing enough on its own to curb fake news. According to Snopes, Facebook’s interface for fact-checkers was very slow, and the company had not built an API, or a specialized data interface to simplify the process of checking facts more quickly and extensively. Snopes is not the only player to have backed out of the program. Associated Press also walked out of the program, though it has not cited reasons for the exit.
All of its issues have resulted in several probes against Facebook. Besides domestic cases in states such as Pennsylvania, Illinois, New York, New Jersey, Massachusetts, and Connecticut, international authorities are also probing Facebook’s data security systems. For instance, Germany and Ireland recently announced their probes into the company. The German probe is looking into the way Facebook collects information on how users surf to drive its advertising revenue. European laws around data security are extremely punitive. Earlier this year, Alphabet was slapped with a fine of $57 million by France’s data-protection authorities. The EU’s General Data Protection Regulation states that companies can be fined as much as 4% of their annual revenues in penalties.
Facebook’s Growth Plans
Despite the concerns, Facebook continues to improve upon its platform’s capabilities. Its big moves come within the messaging segment, where Facebook is now planning to integrate Instagram, WhatsApp, and Messenger. After their acquisitions, Facebook has been running both Instagram and WhatsApp independently. The growing control by Facebook over these services has led to the exit of the founders of these services. The unified messenger service is not expected till 2020 as Facebook is still figuring out the details of consolidation. Going forward, Facebook plans to stop breaking out numbers for these platforms and will report metrics for all of them together.
Facebook has also been investing in other services such as Facebook Marketplace, its Craigslist-like service that it hopes will compete with eBay; longer-form video product for Instagram called IGTV and its dedicated video tab called Facebook Watch – both of which it expects will gain importance with the rise of the cable cutters.
It is interesting to see how despite Facebook’s issues, its financials remain strong. Facebook’s rampant growth brings me back to the question I asked the readers a few weeks ago – How can we use Facebook without Facebook manipulating us?
Its stock is trading at $169.25 with a market capitalization of $486.4 billion. It has fallen from its record high of $218.62 that it was trading at in July last year. The stock has climbed from the 52-week low of $123.02 that it had fallen to in December last year when all the technology stocks were going through a roller coaster ride.