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Facebook’s Shares Surge as Advertisers Ignore Scandals

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Facebook’s Shares Surge as Advertisers Ignore Scandals
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(Bloomberg) -- Facebook Inc. reported revenue that beat Wall Street estimates as advertisers stuck with the social media company through a series of privacy scandals.

The company said fourth-quarter sales were $16.91 billion, ahead of the $16.4 billion analysts expected, with earnings topping expectations. The results sparked a share surge of more than 11 percent in pre-market trading in New York, poised to hit their highest level since late September.

Facebook’s audience grew, bolstering its ability to collect data from users that can lure advertisers. Daily active users averaged 1.52 billion in December, up 9 percent from a year earlier and slightly ahead of Wall Street forecasts. The company also reported an uptick in users in mature markets like Europe, which investors were concerned had reached saturation.

"These results prove the resilience of the core Facebook platform," said Christopher Rossbach, chief investment officer of private investment office J. Stern & Co.

Executives were upbeat on a conference call with analysts, citing user numbers to argue that privacy travails and concern about Facebook’s role in society haven’t damaged the business much. They also said it’s possible to fix those issues while expanding the business.

Facebook ads, and those of larger rival Google, are still more relevant and effective than most other options, precisely because the companies collect so much information on activity across the internet and beyond. New data-privacy rules in Europe may have limited this data harvesting slightly, but that’s hit smaller competitors more than the two giants. Shares of Google parent Alphabet Inc. rose 1.4 percent in extended trading on Wednesday.

Facebook has sparked outrage over its handling of vast amounts of data it collects about people. During the fourth quarter, the public learned more about how it let Russia manipulate users in campaigns that continued through the 2018 U.S. midterm elections. The company also revealed a major privacy breach, after a bug allowed outsiders to access search histories and location check-ins of 14 million people.

"Between the intellectual tech press and the Washington elite, there’s a huge disconnect between the news and what the rest of the world is doing," said Richard Greenfield, an analyst at BTIG LLC in New York. "Advertisers don’t listen to either of those groups -- they listen to consumers. Most of Facebook’s advertisers have no other place to go with a return on investment this good."

Facebook, though, may be bracing for further declines in growth of its main app. The company said eventually, it will no longer report how many people use the social network. Instead, it will disclose total users for a "family of services" that includes Facebook, Messenger, WhatsApp and Instagram. More than 2 billion people use at least one of these apps each day, Facebook noted.

The company also warned that revenue growth will slow because of shifts in its advertising business. Facebook has been running more promotions in messaging apps and in user posts called "stories" that only last 24 hours, because the main Facebook news feed is so popular it has less room to grow. Those newer ads are less lucrative at the moment.

Instagram’s Stories product has 500 million users now, Chief Executive Officer Mark Zuckerberg said on the call. The company is focusing on making more of its messaging services encrypted by default, as well as expanding shopping on Instagram, he added.

There are some long-term effects to the short-term privacy scares. When Facebook’s Portal device for home-video chatting was launched in the fourth quarter, some consumers expressed reservations about the privacy of the product. Zuckerberg told analysts the device sold "better than expected," without disclosing numbers.

Late Tuesday, TechCrunch reported that the company skirted Apple Inc.’s App Store rules to gather data on teen phone usage. The iPhone maker retaliated by revoking Facebook’s ability to make apps without Apple reviewing them first. That means Facebook employees can’t access the iPhone apps they’re developing, causing chaos at the company’s headquarters in Menlo Park, California.

While employees complained on internal message boards about how difficult it was to do their jobs, Chief Operating Officer Sheryl Sandberg brushed off those concerns in an interview with Bloomberg Television. “I think it’s been a pretty productive day at Facebook,” she said.

During the key holiday quarter, the company raked in profit of $6.9 billion, or $2.38 a share. Analysts were looking for per-share profit of $2.18. The latest period was helped by a lower tax rate.

Before the results, Facebook shares closed up more than 4 percent to $150.42 in New York trading. They’re still down about 30 percent from a record high in July.

One analyst cautioned the risk to Facebook’s stock may be further in the future, when European regulators get more deeply involved in their privacy probes. Several different bodies are investigating Facebook, including the Irish Data Protection Commissioner. The consequences may not come this year, but they will eventually, said Brian Wieser, an analyst for Pivotal Research.

“Unfortunately Wall Street can be very short-sighted,” he said.

(Updated with shares.)

To contact the reporter on this story: Sarah Frier in San Francisco at sfrier1@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Alistair Barr

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