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Facebook shares fall as it warns of slowing growth

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A passing pedestrian holding a plastic bag and with white ear buds in his ears steps gingerly over plastic body bags laid out on the pavement outside a mirrored-glass building facade. Each bag has a tag bearing the Facebook logo and the message "disinfo kills", and appears to be stuffed with material so that it looks occupied. In the background, two people in black clothes and face masks carry another bag past the camera. - Eric Kayne/AP
A passing pedestrian holding a plastic bag and with white ear buds in his ears steps gingerly over plastic body bags laid out on the pavement outside a mirrored-glass building facade. Each bag has a tag bearing the Facebook logo and the message "disinfo kills", and appears to be stuffed with material so that it looks occupied. In the background, two people in black clothes and face masks carry another bag past the camera. - Eric Kayne/AP

Facebook shrugged off its feud with Apple to double its profits in the three months ending in June, smashing past Wall Street's expectations.

The social media titan increased its profits from $5.2bn (£3.7bn) in the same period in 2020 to $10.4bn this year, while its revenue rose 53pc from $18.7bn to $28.6bn, the biggest year on year rise since at least 2017.

However, the company warned that its growth would slow down "significantly" over the next six months, even when accounting for the softening of lockdowns and the end of the screen time boom.

It cited hostility from regulators and the worsening impact of Apple's privacy crackdown, which has made it harder for Facebook's customers to track users between different iPhone apps and measure the success of their campaigns.

Shares fell by as much as 4.6pc in after-hours trading as investors absorbed the negative guidance.

Chief financial officer Dave Wehner said: "We continue to expect increasing ad targeting headwinds in 2021 from regulatory and platform changes, notably the recent [iPhone software] updates, which we expect to have a more significant impact in the third quarter compared to the second quarter...

The impact has really generally been in line with our expectations. But look, this has been very challenging for advertisers to navigate, and we're working with them to help."

Facebook wants to be a 'metaverse company'

Facebook is betting heavily on virtual reality (VR), online shopping and social media influencers to compensate for slowing user growth and Apple's new rules. Its revenue growth is now primarily driven by rising advertising prices, which are set by automated auctions and climb when there is high demand to reach its audience.

Facebook's number of monthly active users grew 1.8pc from 2.85bn in the first three months of this year to the current 2.9bn, marking the slowest rate in years. The number of people using at least one of its apps, including WhatsApp and Instagram, still swelled to a staggering 3.5bn, nearing half of the world's population.

Chief executive Mark Zuckerberg said he was excited about Facebook's plans to build a "metaverse", meaning a unified, immersive virtual world incorporating different kinds of online service. He described it as an "embodied internet" where users feel "present" instead of merely looking at screens.

He said: "Within the metaverse, you're basically going to be able to do everything that you can on the internet today, as well as some things that don't make sense on the internet today, like dancing... this is one of the most exciting projects that we're going to get to work on in our lifetime."

He said such services would probably be funded via advertising, but that Facebook will focus on attracting users before seeking to milk them for money, as it has done in the past with most of its services.

Battle with Joe Biden over vaccine hoaxes

Mr Zuckerberg also described Facebook's plans to increase its dominance over its customers by drawing them into its rapidly expanding online shopping system as well as its advertising system, potentially replacing their own websites.

Selling products directly through Facebook's apps would bypass Apple's privacy controls, which only apply to data that is shared between different companies, but also deepen small businesses' dependence on the company.

Mr Zuckerberg said: "We started here by building world class ad tools... but what we found is that when these ads link off-site you often land on a web page that is not personalised, or where you have to re enter your payment information.

"That's not a good experience for people, and it doesn't lead to the best results for businesses either.

The results come amid a PR battle over vaccine misinformation with President Joe Biden, who accused Facebook of "killing people" with its algorithms after missing his own targets for immunising the US.

On Wednesday morning the Real Facebook Oversight Board, a protest group, laid out bright blue body bags in front of the company's Washington, DC headquarters.

Facebook described this a "cheap stunt" and claimed that it had done a better job than Mr Biden at persuading Americans to get the jab. An independent study found that people who got their coronavirus news from Facebook were more likely to be anti-vaccine than with almost any other media source.