Ahead of Facebook’s first-quarter earnings call, analysts were confident about one thing: The company appears to be made of Teflon.
Never mind the privacy debacles, security failures and reportedly gray practices. The social media empire wasn’t likely to lose sleep — or users — over such pesky matters, prompting a bullish outlook for the company.
Now the results are in, and the confidence looks to be well-placed.
Over the first three months of 2019 — during which the company admitted inadequately securing user passwords across Facebook and Instagram, and battled a windfall of leaked documents suggesting it leveraged user data to reward or punish partners and developers — the company nailed FactSet’s DAU (daily active user) forecast of 1.56 billion and exceeded the financial data firm’s MAU (monthly active user) projection, ringing in 2.38 billion instead of the expected 2.37 billion.
Facebook posted earnings of 85 cents per share and revenue of $15.08 billion, up 26 percent year-over-year, with average revenue per user clocking in at $6.42.
In prepared remarks, Facebook chief executive officer Mark Zuckerberg noted that Facebook “had a good quarter and our business and community continue to grow,” while also nodding to the privacy issues that have kept his company in the headlines.
“We are focused on building out our privacy-focused vision for the future of social networking, and working collaboratively to address important issues around the Internet,” he said.
Earlier this month, Facebook admitted it drastically understated the number of users whose passwords were stored in plain text on internal Facebook servers, a move that flies in the face of security best practices.
Last month, Zuckerberg issued a memo stating that his company’s future will hinge on privacy and encrypted services. And in January, the ceo professed that Facebook’s goal is to merge messaging from WhatsApp, Messenger and Instagram. In a statement, he explained that the company wants to “build the best messaging experiences we can; and people want messaging to be fast, simple, reliable and private.”
Discussed changes included bringing more end-to-end encryption to those messaging products — which would make them harder to read, if obtained — and exploring how users could reach across networks to find friends and family.
Talking the good talk is one thing, but walking the walk is another. For investors, what’s paramount is having confidence that the company can tackle privacy, without driving down its numbers.
It seemed that Wall Street was in for the ride: Facebook’s stock jumped nearly 8 percent in after-hours trading.
On the earnings call, Zuckerberg spent the lion’s share of his opening remarks addressing privacy. In his vision for the future of social networking, as he laid it out on the call, there must be a distinction between public and private conversations. He distinguished them in terms of a town square, as created by Facebook and Instagram, and a “digital living room,” with the latter being a private venue for conversations.
“Today people increasingly want the intimacy of connecting privately as well, so I think that there also needs to be a digital equivalent of the living room — a platform just as built out with all the ways that you’d want to interact privately,” he said. “We already see that in messages, small groups, and Stories are, by far, the fastest-growing areas of online communication. And we also know that people want additional tools for private interactions like payments and commerce.”
He disclosed that Facebook is working on just such a privacy-focused “digital living room” or platform. The plan is to build it similarly to the way the company developed WhatsApp, to focus on the most fundamental and private use case, secure messaging.
But, he said, it won’t arrive anytime soon. To answer a question on the matter, he responded, “I think that this is going to be a central focus for the company for the next five years or longer.” Zuckerberg acknowledged the need to consult with experts and governments.
In other words, it’s still early, so Facebook is not yet sure what the move will mean to its bottom line. “But on some of the questions, like whether encrypting content will hurt our business, I’m more confident that won’t be a significant issue,’ Zuckerberg added. “We don’t use the content of messages between people to target ads today, so encrypting that content won’t change what we do. It will strengthen people’s privacy without meaningfully affecting our business.”
The company also mentioned that it’s working on bringing more transparency to the platform, particularly in light of the upcoming elections, but expressed discomfort with the thought of corporations setting guidelines that might influence politics. And for privacy, he even stressed the need for more countries to adopt regulations, such as Europe’s General Data Protection Regulation. This echoed talk from Apple’s Tim Cook in New York on Tuesday.
In other parts of the call, Facebook discussed shopping and commerce as major priorities. With Instagram shopping, which recently added supported in-app payments and transactions, the company is taking great care, rolling it out slowly to a closed group of 23 brands and learning from that.
Eventually, “the goal would be to have something where you can do discovery through the broader town square, like platforms in Instagram and Facebook, and then you can complete the transactions and follow up with businesses individually and have an ongoing relationship through Messenger and WhatsApp,” Zuckerberg said.
“And this is one of the things I think will create a lot of value for people discovering and interacting with businesses.”
Roughly 2.7 billion people use Facebook, Instagram, WhatsApp and Messenger each month, with more than 2.1 billion people using at least one daily. The company is also seeing fast adoption of Stories, as well as mobile ad revenue growth of 30 percent year-over-year to $13.9 billion, which makes up about 93 percent of the total ad revenue.
Of course, there are also factors like the specter of a Federal Trade Commission inquiry, which has the company reserving $3 billion to $5 billion.
Turns out, the network’s privacy problems are having an effect beyond inspiring a new platform. It could be hitting the company in the wallet after all.