Facebook Earnings Soar Amidst Bad Headlines, Foreseen Troubles

After a deluge of bad press following the tens of thousands of pages leaked by Frances Haugen, Facebook’s reported third-quarter earnings on Monday rose slightly above analysts’ estimates. 

While analysts expected Facebook’s earnings to be $3.19 per share, they earned $3.22 per share.

The company reported $29.01 billion in revenue -- up 35% from the same period last year. Facebook also posted almost $9.2 billion in profit, up 17% from 2020. The user count among Facebook’s multiple apps –– Instagram and WhatsApp –– grew 12% YoY to nearly $3.6 billion during the quarter. 

Following the earnings report, Facebook stock rose up to 3% in after-hours trading Monday, before falling to around 1% higher. 



On the earnings call, CEO Mark Zuckerberg told analysts that Facebook will be making significant changes in the next year to focus more on its full-screen video Reels feature, in an attempt to compete directly with TikTok’s rising popularity, especially among users between 18 and 29 years old. 

The Facebook Papers showed that the amount of U.S. teenagers using Facebook declined 13% in 2019 and was projected to fall 45% over the next two years. User numbers for 20- to-30-year-olds were expected to drop 4%. 

While Zuckerberg said he thinks “Reels has the potential to be something of that scale,” he also stated that the “shift will take years, not months, to fully execute.” However, once it is in place, Reels will be another core feature of the platform, just as crucial as the adoption of News Feed and Stories. 

With the leaked documents showing that these core features prove problematic with the rise of misinformation and hate speech, Zuckerberg’s statement begs the question of what kind of safety precautions and/or regulations Facebook will include if Reels catches on. 

Amidst Facebook’s successful earnings, the company is also battling with the effects of Apple’s iOS 14 privacy mandates, warning that “continued headwinds” should be expected in 2021’s fourth quarter. 

“We've been open about the fact that there are headwinds coming and we experienced that in Q3. The biggest is the impact of iOS 14 changes,” COO Sheryl Sandberg said on the company's earnings call. “As a result, we've encountered two challenges: one is that the accuracy of our ad targeting decreased, which increased the cost of driving outcomes for our advertisers, and the other is that measuring those outcomes became more difficult.”

Sandberg also reported that as more businesses open post-COVID-19 shutdown and consumers return to brick-and-mortar locations, Facebook has experienced slowing e-commerce growth.

“Businesses are still making the shift online,” Sandberg said, “but e-commerce is no longer growing at the pace it was at the height of the pandemic.”

According to Sandberg, Facebook is still “the best platform for advertisers to reach people where they are and get measurable outcomes.” However, advertisers have slowed their spending due to the global supply chain issues and labor shortages, and Facebook is struggling to measure ad performance amidst iOS 14.

Another change to consider is Facebook’s rebranding toward the metaverse, and more specifically, Reality Labs, the company’s division of augmented and virtual reality services. Facebook reported that its expected investment in hardware and VR to reduce 2021 operating profit by about $10 billion. 

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