Facebook beats profit, revenue expectations on video advertising push

Facebook Inc (FB.O) reported better-than-expected quarterly profit and revenue on Wednesday as it pushed further into video advertising, showing no sign of financial damage from the controversy over how Russia may have used the social network to meddle in the 2016 U.S. elections.

The company’s shares rose about 1 per cent to US$184.50 in after-hours trading. The shares have gained almost 60 per cent this year and hit a record high of US$182.90 in regular trading.

Chief Executive Mark Zuckerberg condemned Russia’s attempts to influence last year’s election through Facebook posts designed to sow division, and repeated his pledge to ramp up spending significantly to increase the social network’s security, something he said on Wednesday would affect profits.

“What they did is wrong, and we are not going to stand for it,”┬áZuckerberg said of the Russians, on a conference call with analysts.

Facebook is at the center of a political storm in the United States for the ways it handles paid political ads and allows the spread of false news stories. U.S. lawmakers have threatened tougher regulation and fired questions at Facebook General Counsel Colin Stretch in hearings this week.

Facebook, in a series of disclosures over two months, has said that people in Russia bought at least 3,000 U.S. political ads and published another 80,000 Facebook posts that were seen by as many as 126 million Americans over two years. Russia denies any meddling.

Facebook’s total advertising revenue rose 49 per cent in the third quarter to US$10.14 billion, about 88 per cent of which came from mobile ads.

Analysts on average had expected total ad revenue of US$9.71 billion, according to data and analytics firm FactSet.

Facebook in the third quarter gave advertisers for the first time the ability to run ads in standalone videos outside the Facebook News Feed, and the company is seeing good early results, Chief Operating Officer Sheryl Sandberg told analysts on a conference call.

“Video is exploding, and mobile video advertising is a big opportunity,” Sandberg said.

More than 70 per cent of ad breaks up to 15 seconds long were viewed to completion, most with the sound on, she said.

The 49 per cent increase in total ad sales in the latest quarter compares with a 47 per cent rise in the prior quarter and a 51 per cent jump in the first quarter.

Facebook has been warning for more than a year about reaching a limit in “ad load,” or the number of ads the company can feature in users’ pages before crowding their News Feed.

Advertisers seem unfazed, though, spending heavily as the social network continues to attract users.

The nearly 50 per cent jump in ad revenue “is phenomenal, especially when for the past few quarters they’ve been trying to bring that expectation way, way down. Yet it keeps going up,” Tigress Financial Partners analyst Ivan Feinseth said.

Of the Russia scandal enveloping Facebook publicly, Feinseth said: “In the bigger picture, I don’t think it’s a really big factor.”

Facebook said about 2.07 billion people were using its service monthly as of Sept. 30, up 16 per cent from a year earlier.

Analysts on average had expected 2.06 billion monthly active users, according to FactSet.

Net income rose to US$4.71 billion, or US$1.59 per share, from US$2.63 billion, or 90 cents US per share.

Analysts on average were expecting the company to earn US$1.28, according to Thomson Reuters I/B/E/S.

Total revenue increased 47.3 per cent to US$10.33 billion, beating analysts’ estimates of US$9.84 billion, according to Thomson Reuters I/B/E/S.

Various U.S. investigations into how Russia may have tried to sway American voters in the months before and after last year’s elections are hanging over Facebook and its competitors.

There is also proposed U.S. legislation that would extend rules governing political ads on television, radio and satellite to also cover digital advertising.

“We expect more scrutiny about Facebook’s ad system ahead,” analyst Debra Aho Williamson of research firm eMarketer said in a note. “We’re also monitoring for any signs that this investigation will have a material impact on ad revenue.”

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