Facebook Earnings Rise Despite User Decline in US

Facebook announced its financial results for the third quarter today, reporting revenues totaling $21.5 billion and a net income of $7.8 billion. During this three-month period, the company achieved a profit of $2.71 per share.

Financial experts had predicted a lower earnings figure for the social media giant, estimating $1.91 per share based on revenues of $19.82 billion. Facebook also revealed an average of 1.82 billion daily active users in September, representing a 12% increase year-over-year. The number of monthly active users reached 2.74 billion, also a 12% rise. Both of these figures exceeded previous forecasts.

The company’s employee base experienced significant growth throughout the year, increasing by 32% compared to the same period last year. This growth rate surpassed the company’s 22% year-over-year revenue increase. Total operating expenses rose by 28%, exceeding the rate of revenue growth.

Following the earnings release, Facebook’s stock price remained relatively stable in after-hours trading, showing an increase of approximately 0.4% at the time of this report.

The report did not include a specific financial forecast for the fourth quarter of 2020 or for 2021. Instead, Facebook indicated that it expects the year-over-year growth rate for ad revenue in the fourth quarter of 2020 to be higher than the reported rate for the third quarter of 2020, alongside increased revenue from sources other than advertising, particularly sales of the Oculus Quest 2 virtual reality headset.

Facebook acknowledged that 2021 will likely present a considerable degree of uncertainty. One potential challenge for Facebook is the evolving regulatory landscape in Europe, specifically concerning the legality of data transfers between continents. The company stated it is “carefully observing the possible effects on our operations in Europe as these issues develop.”

Current analyst projections estimate Facebook will generate revenues of $24.25 billion and a per-share profit of $2.67 in the fourth quarter of 2020. For the full year 2021, analysts anticipate revenues of $100.0 billion, resulting in a per-share income of $10.26.

What is the key takeaway from these results? The robust advertising market that positively impacted Snap’s performance has also benefited Facebook. In its earnings report, Facebook explained that the “pandemic has accelerated the transition of commerce from physical stores to online platforms,” which has led to “increased demand for advertising as a direct result of this shift.” In contrast, Twitter experienced only a modest increase in ad revenue, approximately 8% compared to the previous year, as advertiser spending patterns remain unpredictable.

This represents a favorable trend driven by a long-term change in consumer behavior. For Facebook, this could translate into a year of substantial growth.

It is important to note, however, that Facebook experienced a decrease in users in the U.S. and Canada – declining from 198 million to 196 million – which the company attributes to a slowdown in the unusually high usage rates observed during the peak of COVID-19 lockdowns. The company anticipates this trend of stagnation or decline will continue into the third quarter, predicting that “in the fourth quarter of 2020, we expect this trend to persist, and the number of DAUs and MAUs in the US & Canada will be stable or slightly lower compared to the third quarter of 2020.”