No Bill Yet for Facebook's Fixes

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So what will it cost to “fix”


FB -0.12%

? The company’s fourth-quarter results reported Wednesday offered an early clue.

CEO Mark Zuckerberg has made “fixing” the social network his top goal for the new year. He has previously outlined several efforts in this direction—including an overhaul to the company’s key News Feed tool and video efforts. He also has warned that the changes could affect the site’s usage, but added that “protecting our community is more important than maximizing our profit.”

Results reported Wednesday afternoon showed Mr. Zuckerberg was half right, at least for now. Usage indeed took a hit in the fourth quarter, reflecting some of the changes the company had put in place. Facebook reported 1.4 billion daily average users for the period, an increase of only 2.4% from the third quarter. That was the lowest sequential growth on record for this key engagement metric—and down notably from the 4.1% growth the company reported at this time last year. The 33 million daily average users added in the quarter was below the 46 million expected by Wall Street analysts.

But Facebook’s fixes are still invisible in its financial statements. In fact, the fourth quarter was the company’s strongest on record in many respects. Revenue jumped 47% year over year to just under $13 billion, fueled by a strong mobile-advertising business. Operating income surged 61% to $7.4 billion. And Facebook isn’t exactly pinching pennies to goose the bottom line: Capital expenditures soared to $6.7 billion in 2017—a 49% jump from the previous year.

Facebook’s profits can be deemed the envy of the tech world. On a trailing 12-month basis, Facebook now generates about 50 cents in operating profit per dollar of revenue. That is roughly twice as much as its megacap tech peers




Inc. and Google parent



But investors should still get ready for a slightly less profitable Facebook. Some of the company’s more significant changes have yet to be fully reflected, and the changes already in effect may not have hit advertisers’ radar. When both hit, that may be the truest test of Mr. Zuckerberg’s resolve—and that of his investors.

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