Facebook’s Second-Quarter Sales Top Estimates as Ads Rebound

(Bloomberg) -- Facebook Inc.’s second-quarter sales topped analysts’ highest estimates, rebounding from a pandemic-fueled disruption to digital advertising earlier in the year as its social media apps continued to draw more users.

Revenue rose 11% to $18.7 billion, compared with the $17.3 billion average analyst projection. Facebook’s main social network logged 2.7 billion monthly active users in the period, according to a statement Thursday, compared with the 2.63 billion average estimate of analysts polled by Bloomberg. Shares jumped about 6.5% in late trading.

Facebook, whose business model is built on collecting user information so ad messages can reach the most fruitful targets, made the case that such targeting is now an essential service for small businesses forced to close storefronts during the Covid-19 outbreak. On a conference call, Chief Executive Officer Mark Zuckerberg said government privacy regulations -- some already in progress, some threatened for the future -- “would reduce opportunities for small businesses so much,” at a time when their livelihoods depend on reaching out to locked-down customers.

“That would probably be felt at a macroeconomic level, and is that really what policymakers want in the middle of a pandemic in recession?” Zuckerberg said.

Facebook shares soared as high as $254 in extended trading following the report, on track to reach a record, after closing at $234.50. The stock had gained 14% so far this year.

The better-than-forecast report shows advertisers were willing to boost budgets in the second quarter after holding off earlier in the year. Profit doubled to $5.18 billion, or $1.80 a share, beating the $1.39 per-share average estimate. Because of Facebook’s vast reach and the rise in usage during the pandemic, the company’s results have been able to withstand a broader economic slowdown better than many other large companies.

Most of Facebook’s advertising revenue comes from small and medium-sized businesses that have few other options to reach customers. But not all advertisers are happy with the Facebook option. In the current quarter, Facebook is confronting an advertiser boycott, after civil rights leaders called on major brands to protest the company’s handling of harmful content and misinformation. More than 1,000 advertisers, from Verizon Communications Inc. to Coca-Cola Co., pulled promotions from Facebook starting in July.

Still, Facebook said ad revenue in the first three weeks of July was in line with the second quarter’s 10% growth rate, taking into account “the impact from certain advertisers pausing spend on our platforms related to the current boycott.”

Facebook’s problems are “short-term and not structural, as FB has a good track record of managing advertiser concerns,” Mizuho Securities analyst James Lee wrote in a note to investors before the report.

The Menlo Park, California-based company said that every month, 3.14 billion people use at least one of its products, including photo-sharing app Instagram and the WhatsApp messaging platform. Facebook said user growth is likely to slow or flatten as shelter-in-place orders are lifted. The company has continued to hire rapidly during the pandemic, and ended the quarter with 52,534 employees. That’s up 32% from a year earlier.

Researcher EMarketer attributed the positive quarterly results to Instagram. Facebook doesn’t break out revenue for Instagram, though people familiar with the matter have said the mobile app brings in more than a quarter of Facebook’s sales.

“Instagram has played a major role in Facebook’s ability to withstand the effects of the pandemic,” said EMarketer analyst Debra Aho Williamson. “Its success is helping to buoy Facebook as a whole.”

The company’s earnings report was delayed from Wednesday, the day of an antitrust subcommittee hearing in the U.S. House, where representatives for hours interrogated Chief Executive Officer Mark Zuckerberg, alongside other tech leaders. Armed with documents collected during the inquiry, the lawmakers asked Zuckerberg about Facebook’s acquisitions of WhatsApp and Instagram, which Zuckerberg admitted were purchased in part to remove competition.

Zuckerberg also told the Congressional panel that he was listening to the advertiser boycott, but was “not going to set our content policies because of advertisers. I believe that that would be the wrong thing to do.”

In its outlook, Facebook said it expects business to become more challenging because of new regulations, like the California Consumer Privacy Act, as well as changes to mobile operating platforms “which we anticipate will be increasingly significant as the year progresses.” Apple’s iOS 14 smartphone operating system, soon to be released, will put restrictions on tracking users across apps -- a tool that Facebook relies on for targeting mobile ads.

©2020 Bloomberg L.P.