Facebook Inc. stumbled through another rocky quarter, struggling to add new users in key markets as the social media giant continues to face a public backlash over concerns about privacy and political interference on its platform.
The company has faced a tumultuous year as it grapples with the fallout from revelations that political consulting firm Cambridge Analytica had improperly accessed personal information on millions of users. Its shares have tumbled more than 30 per cent since July, after company officials warned of slowing growth and rising expenses, in part because of new investments to tackle the company’s privacy and security issues.
Since then, Facebook has revealed a massive data breach, the discovery of new Iranian and Russian foreign influence networks on the platform, fresh regulatory sanctions and the departure of several key executives.
“This has been a tough year,” chief executive Mark Zuckerberg told an analysts conference call on Tuesday.
Facebook added 24 million new daily users in the third quarter, with the fastest growth coming from India, Indonesia and the Philippines. But user growth in the United States and Canada remained flat at 185 million daily active users. Facebook lost one million users in Europe in the quarter. Chief financial officer Dave Wehner attributed the continued drop in European users partly to sweeping digital privacy legislation rolled out across the European Union earlier this year.
The company has added no new users in its key North American markets for the past three quarters and has lost a total of four million daily European users this year. Those are Facebook’s most lucrative advertising markets. The social media firm earned more than US$27 per user in the United States and Canada in the quarter, compared with less than US$3 in countries outside of Europe and North America.
Advertising revenues hit US$13.73-billion in the three months ending in September, up 33 per cent from the same period last year, but slightly below what analysts had expected. Profits in the form of diluted earnings per share rose roughly 10 per cent to US$1.76, beating expectations.
Mr. Zuckerberg blamed Facebook’s slowing growth largely on the company’s efforts to shift users away from consuming passive content on their news feeds, such as viral videos or news articles, toward more interactions with friends and family.
Users increasingly prefer to interact with each other in private messages or temporary messaging services, rather than through public posts, he said. Facebook owns two private messaging apps, Messenger and WhatsApp, and has introduced Stories – posts that disappear after 24 hours – on Facebook and Instagram, along with a similar service called Status on WhatsApp.
But Mr. Zuckerberg warned ad revenues from those services have struggled to match the company’s main profit engine, its news feed. “It will take some time for our business to catch up to our community growth,” he said.
He also cautioned that Facebook’s advertising business “may be close to saturation” in mature markets such as the United States, even as it continues to grow quickly in less-lucrative developing markets.
Company officials braced investors for even more challenges next year, with revenue growth expected to slow “by a mid-to-high single-digit percentage” Mr. Wehner said, while expenses will continue to climb.
Investors and analysts were stunned this summer when company officials first said that Facebook’s efforts to fix its privacy woes would cut into the company’s bottom line. Facebook has said it plans to continue to invest in safety and security in response to privacy scandals, including doubling its security workforce to 20,000.
Mr. Zuckerberg said he expects Facebook will need another year of “significant investment” in automated tools and content moderators before he can feel confident the company is prepared to effectively tackle problems like hate speech and propaganda.
The social media giant has dealt with a fresh series of privacy and security challenges in recent months. It has purged hundreds of accounts linked to Iran and Russian military intelligence services that were spreading politically motivated spam in the U.S. and abroad.
In September, Facebook revealed hackers had been able to exploit bugs in the platform’s code that had exposed the personal information of 30 million Facebook users. The data breach is the most significant in the company’s history, and could bring with it threat of action by regulators in Ireland, home to Facebook’s European headquarters, under strict new privacy laws that came into force in the European Union earlier this year.
Still, investors were more prepared this time for the company’s disappointing financial news and some analysts saw the results as a positive sign. “It was a pretty good quarter and everybody was expecting a disaster,” said Ivan Feinseth of Tigress Financial Partners.
Pivotal Research Group’s Brian Wieser who has a sell rating on Facebook, said the company’s financial results “did little to persuade us that the company has a handle on the operational problems it faces” with privacy and security.
Facebook’s share price closed at $146.22, up nearly 3 per cent.
Tamsin McMahon