Facebook Profit Jumps 79%--Update

By Deepa Seetharaman Features Dow Jones Newswires

Facebook Inc. extended its dominance in online advertising in the third quarter but said it would sacrifice some future growth to invest more heavily in its safety and security operations to address the growing scrutiny of its power and influence.

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The social-media giant reported a 79% jump in third-quarter profit on Wednesday, the same day lawmakers grilled executives from Facebook, Twitter Inc. and Alphabet Inc.'s Google during congressional hearings that focused on alleged Russian propagandists' activity during the election. Facebook and Google together capture the bulk of the growth in digital advertising.

Facebook plans to double the number of employees and contractors who handle safety and security issues to 20,000 by the end of 2018. It is also redoubling security-focused engineering efforts in some areas and building new artificial-intelligence systems to detect what Chief Executive Mark Zuckerberg described as "bad content and bad actors." Facebook's 2018 expenses could rise as much as 60% compared with 2017.

"I am dead serious about this," Mr. Zuckerberg told investors. "I've directed our teams to invest so much in security on top of the other investments we're making that it will significantly impact our profitability going forward."

Facebook is confronting one of the toughest periods in its 13-year history. This week, Facebook's general counsel, alongside representatives from Twitter and Google, faced a series of hostile questions from U.S. lawmakers over its failure to detect the way Russian propagandists used its platform to spread divisive content.

The grilling raises the specter of regulation and added scrutiny, which could slow Facebook's growth and ability to rapidly develop new products. The crisis also put Facebook in the awkward position of playing down the effectiveness of the Russian ads while touting the strength of its ad targeting and reach to legitimate advertisers.

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Advertisers, too, are wary of Facebook's video ad products after a series of missteps in calculating advertising performance.

"The underlying issue is whether Facebook can be sufficiently trusted by stakeholders," said Pivotal Research analyst Brian Weiser. "There's always been this concern that at the top of the company they're not taking these matters seriously enough. Lack of trust creates friction, lack of trust creates rules and those rules come with costs."

Facebook reported a third-quarter profit of $1.59 a share, up from 90 cents a share a year ago. The company also generated $10.33 billion in revenue, up from $7.01 billion in the prior year's quarter.

The firestorm about Russia hasn't hurt Facebook's popularity. The company increased its monthly active user base to 2.07 billion.

Its shares were down about 1.8% in after-hours trading. The stock price is up more than 59% this year through Wednesday's close.

Since the 2016 U.S. presidential election, Facebook has faced immense criticism for allowing misinformation, propaganda and violent videos to proliferate on its service and shape political discourse around the world.

Facebook reinvigorated the debate two months ago after it disclosed that Russian-linked Facebook accounts bought thousands of ads that sought to inflame social and political tensions before and after election.

In congressional hearings on Tuesday and Wednesday, General Counsel Colin Stretch faced questions that went beyond Facebook's role in the 2016 election and touched on its ad-targeting capabilities and content policies.

Facebook said 146 million users saw posts from accounts linked to the Internet Research Agency, a pro-Kremlin outfit that sought to use Facebook to amplify social divisions in the U.S.

Facebook is relying on both human oversight and nascent technology, like artificial intelligence, to address concerns. Earlier this year, Facebook committed to hire a total of 4,000 people to review content and ads. The company is testing a feature that would show some Facebook users more information about the entities behind ads on its platform. Chief Operating Officer Sheryl Sandberg said the company was exploring similar steps to inform users about the people behind political pages on Facebook.

In March, Facebook added staff and started working on new technology to more quickly detect live broadcasts on its platform that show a user who might hurt him or herself. Facebook, which largely relies on users to flag the videos, now reviews them within 10 minutes, Mr. Zuckerberg said Wednesday.

Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com

(END) Dow Jones Newswires

November 01, 2017 19:33 ET (23:33 GMT)