Facebook profit up despite privacy failings

Facebook profits were up 61% for the quarter ending 31 December 2018 to $6.88bn and up 39% for the year to $22.1bn, with revenues of $16.9bn (up 30%) and $55.8bn (up 37%) respectively.

Advertising revenue for the quarter was up 30% to $16.9bn and up 38% for the year to $39.9bn. Key mobile advertising revenue accounted for 93% of advertising revenue for the fourth quarter of 2018, up from 89% in the equivalent period the year before.

Facebook also reported a 9% year-on-year increase in the number of daily active users in December to 1.52 billion on average. The number of monthly active users was also up 9%, to 2.32 billion.

The social media giant estimates that about 2.7 billion people now use Facebook, Instagram, WhatsApp or Messenger and more than 2 billion people use at least one of the company’s services every day.

Public reaction to the Cambridge Analytica data-sharing scandal, ongoing legal battles in the Dublin High Court about privacy breaches, a £500,000 fine from the Information Commissioner’s Office for failing to protect users’ personal information and a data breach that could have affected the accounts of up to 90 million users, appear to have had little impact on Facebook’s popularity or bottom line.

The company’s results surpassed Wall Street estimates and shares rose by almost 8% in after-hours trading, according to the Telegraph, as investors focused on the positive advertising revenues and user numbers.

Despite these gains, Facebook also reported that its costs and expenses were up 62% for the quarter to $9bn and 51% for the year to $24.9bn. Capital expenditure for the year was $13.92bn, almost double the amount reported for 2017.

However, the positive results also coincide with reports that Facebook has been paying teenagers $20 a month to install an app that allows analysis of their online habits. Apple has subsequently shut down the app, saying Facebook misused its privileges to distribute the app involved, The Verge reports.

In a call with analysts, Facebook founder and CEO Mark Zuckerberg said that in the past few years, the company’s focus and energy have gone into addressing some of the biggest social issues around the future of the internet, including election integrity, content governance, safety and security, data privacy and digital wellbeing.

“These are all complex issues, but we’ve made real progress,” said Zuckerberg. “In many of these areas, we believe we built the most advanced systems in the world and, in many cases, more advanced than any other company or government. And in other areas, we have clear roadmaps now for our work ahead.”

But he added: “There is a lot more to do, and I expect it will take strong execution through 2019 and beyond before we get all our systems to the level that we need.

“But we have fundamentally changed how we run this company. We have changed how we build services to focus more on preventing harm. We have invested billions of dollars in security, which has affected our profitability.

“We have taken steps that reduced engagement in WhatsApp to stop misinformation and reduced viral videos in Facebook by more than 50 million hours a day to improve wellbeing. We have made significant progress and we are going to continue this work, but we are also going to allocate more of our energy to building new and inspiring ways to help people connect and build community.”

Zuckerberg identified four priorities in 2019:

• Continue making progress on the major social issues facing the internet and Facebook.
• Build new experiences that “meaningfully improve people’s lives” and set the stage for even bigger improvements in the future.
• Keep building Facebook’s business by supporting the millions of businesses that rely on its services to grow and create jobs.
• Communicate more transparently about what Facebook is doing and the role its services play in the world.

Zuckerberg highlighted the fact that Facebook ended 2018 with more than 30,000 people working on safety and security, up from 10,000 in the past. “This work will never be finished,” he said, “but I now believe we have built some of the most advanced systems in the world for dealing with these issues.”

Zuckerberg also mentioned the issue of privacy and encryption. “People really value the privacy that encrypted messaging brings and we have built the most secure global messaging service in the world,” he said.

“As people increasingly share more privately, we are working on making more of our products end-to-end encrypted by default and making more of our products ephemeral, so your information doesn’t stick around for ever.”

While investors have responded positively to Facebook’s financial results and undertakings by its leadership, it remains to be seen what regulatory action will come in 2019, with potentially huge fines on the way for privacy failings, especially in the absence of any discernible backlash from users.