Facebook looking good with ad business pushing social media giant to record revenues

Daily users in the U.S. and Canada fell for a second consecutive quarter to 195 million

Facebook Inc. posted record revenue and profit in the fourth quarter as online holiday shopping and increased use of the company’s platforms during the pandemic drove a surge in its ad business.

However, the social-media giant warned Wednesday that uncertainty from regulatory probes and the potential for weaker ad-targeting capabilities related to Apple Inc.’s iOS 14 operating system could hurt its business.

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Facebook posted revenue of $28.07 billion, up from $21.08 billion in the final quarter of 2019. Facebook’s profit rose 52% to $11.22 billion, or $3.88 a share. Both measures far exceeded analysts’ projections.

The company has pushed for years to make its platforms essential both for large advertisers to reach its billions of users world-wide and for small businesses and individual sellers to connect with customers and market their goods. Revenue from the ad category, which includes Facebook Marketplace and the company’s virtual-reality business, more than doubled in the latest quarter from a year earlier to $885 million.

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FB FACEBOOK, INC. 364.72 -8.34 -2.24%

“This means that small businesses showed up in the fourth quarter,” said AB Bernstein analyst Mark Shmulik, who foresees such firms shifting toward digital advertising more permanently. “I have an expectation that the majority will stick around.”

Facebook also said Wednesday that it was adding up to $25 billion to its existing stock buyback program. Shares in the company, which initially showed declines after the report was released, were up less than 1% in extended trading. Facebook’s shares have lagged behind the Nasdaq Composite Index over the past three months.

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The latest results are also likely to raise concerns among critics of the market power wielded by the parent company of Facebook, Instagram and WhatsApp. The tech giant said 2.6 billion people a day, or roughly one in three world-wide, used one of its platforms in the holiday quarter.

Still, Facebook’s daily users in the U.S. and Canada fell for a second consecutive quarter to 195 million, which eMarketer analyst Debra Aho Williamson attributed to mounting competition from rival social networks. People in those markets “are starting to move their social time and engagement elsewhere,” she said, citing TikTok as a likely example.

Last month the Federal Trade Commission and 46 states filed antitrust lawsuits against Facebook, accusing it of buying and freezing out small startups to choke competition. Facebook has disputed claims presented in the lawsuits, describing them as revisionist history and defended its acquisitions as good for competition, advertisers and consumers.

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The company has also been criticized for its decision to indefinitely ban former President Donald Trump from Facebook and Instagram after he made posts encouraging supporters’ protests at the U.S. Capitol that led to a deadly riot on Jan. 6. The tech giant recently referred the matter to an independent committee to determine whether Mr. Trump should be allowed back.

Analysts have been looking for signs that Facebook is making progress in efforts to expand its business beyond advertising in areas such as e-commerce and virtual reality.

Facebook’s foray into e-commerce could yield big benefits in the long run, analysts say. Instagram Shopping and Reels along with Facebook Marketplace could be responsible for $3 billion of additional revenue for the company this year, according to a recent note from Morgan Stanley. The note cited a survey that found about a third of Americans use Shopping and Reels monthly while more than half use Marketplace.

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Facebook is the first U.S. social-media company to report earnings for the most recent quarter. Snap Inc. and Twitter Inc., which also deactivated Mr. Trump’s accounts, are scheduled to release their quarterly financial reports next month. With all three, analysts are looking for indications of whether banning the former president has reduced user engagement, though early data from analytics firms show no substantial changes in daily users or time spent on the platforms’ websites and apps.