Earnings Results: Facebook posts huge earnings beat, shares surge

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Facebook Inc. reported top- and bottom-line results late Wednesday that beat Wall Street analyst estimates, even amid the company public-relations struggle following revelations of the improperly handled data of 87 million users.

The data-privacy scandal involving Cambridge Analytica broke in mid-March, but the company appeared to shrug off those concerns and posted $4.99 billion in quarterly profits on sales of $11.97 billion, topping net income estimates of $4.01 billion and revenue of $11.41 billion. Facebook FB, +0.00%  stock traded up nearly 5% in the extended session after closing flat at $159 during regular trading. Facebook stock has lost 9.5% this year, as the benchmark S&P 500 index SPX, +0.18%  has lost 1.5%.

Of Facebook’s overall revenue, mobile sales made up 91%, with the remainder split between desktop ads and Facebook’s other businesses.

Daily active users and monthly active users — two key measures of Facebook’s account growth — clocked in-line with analysts’ expectations at 1.45 billion and 2.2 billion respectively, according to FactSet. The company’s operating expenses came in below consensus expectations, though Chief Executive Mark Zuckerberg has warned they will continue to eat into Facebook’s profits as it adds 20,000 workers to address security and privacy concerns.

According to the earnings release, Facebook increased its workforce by 48% to 27,742, compared with the year-earlier quarter.

Head of technology research at GBH Insights Daniel Ives wrote in a note to clients late Wednesday that the company's results were “solid” and heralded the company’s profit and revenue as a “key initial victory” for the stock as investors gauge damage from the Cambridge Analytica fallout.

While much of the attention has been focused on the Cambridge Analytica scandal that broke on March 17, Zuckerberg said as recently as early April that it has had no material effect on the company’s financial operations — yet.

But the changes the company announced early this year have had much more time to play out. In January, Zuckerberg said the company would give posts and other content from members’ friends and family a higher priority than material produced by third-parties such as news organizations, marketing companies and other for- and nonprofit corporate pages.

At the time, Zuckerberg issued a warning to investors: Facebook executives expected “some measures of engagement” to drop and that its 2-billion-and-counting user base would likely spend less time on the platform.

When asked about the business impact of the changes at the February Morgan Stanley tech conference in San Francisco, Facebook Chief Financial Officer David Wehner told analysts that spending less time on the platform doesn’t necessarily mean a corresponding decline in revenue.

“The impact of the business is much more muted because we’re still seeing that there’s lots of post engagement,” he said. “So when you’re taking away time from things like passive video, it doesn’t mean you’re not seeing as many posts in news feed. . . . I don’t think the impact on the business is really that profound relative to the impact on time.”

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