Facebook results top estimates but firm loses virtual reality case

Facebook shares rose more than 2 per cent in after-hours trading on Wednesday as the world’s largest online social network reported higher-than-expected quarterly profit and revenue, helped by continued growth in mobile advertising.

The results offered some reassurance to investors who have been concerned since the company warned in November that ad growth would likely slow “meaningfully” due to limits on ad load - the total number of ads Facebook can show to each user.

Facebook has faced doubts about whether it can continue its runaway success in the face of such limits, as well as its absence from the Chinese market and criticism about its handling of so-called “fake news” posts during last year’s US election.

The company suffered a slight setback just before the market close when a jury in Texas ordered Facebook, its virtual reality unit Oculus, and other defendants to pay a combined US$500 million to ZeniMax Media Inc, a video game publisher that says Oculus stole its technology.

Facebook shares were up 2.4 per cent at US$136.44 after the bell on Wednesday.

Mobile ad revenue accounted for 84 per cent of the company’s total advertising revenue of US$8.63 billion in the fourth quarter that ended December 31, compared with 80 per cent a year earlier.

Analysts on average had expected total ad revenue of US$8.31 billion, according to research firm FactSet StreetAccount.

The company inched closer to reaching 2 billion users, saying that about 1.86 billion people were using its service monthly as of December 31, up 17 per cent from a year earlier.

Mobile daily active users rose 23 per cent to 1.15 billion, the company said. About 90 per cent of Facebook’s users access the network through mobile devices.

However, many analysts have raised concerns about Facebook’s ability to meet its own targets it sets every quarter.

“I think the rate of growth will decline, but it will remain very high,” said analyst Michael Pachter of Wedbush Securities. “They grew 57 per cent in 2016, and our current model has ‘only’ 38 per cent revenue growth in 2017. That’s still pretty impressive.”

Pachter said he expects Facebook to appeal Wednesday’s jury verdict in Texas, but that the result would not affect the share price even if the company loses. “Even if Facebook has to pay US$300 million, it’s less than US$0.10 per share and they have US$29.5 billion in cash,” he said.

Apart from the core Facebook network, which contributes the lion’s share to overall revenue, the company’s photo-sharing app Instagram and messaging service WhatsApp also have huge user bases.

Facebook has been adding features to attract more users and retain those already on the network, with a feature to tackle fake news posts being the most recent addition, after the criticism that followed the US election on November 8.

Facebook is expected to generate about US$29.71 billion in mobile ad revenue in 2017, according to research firm eMarketer, up about 35.2 per cent from 2016.

Net income attributable to Facebook shareholders rose to US$3.56 billion, or US$1.21 per share, from US$1.56 billion, or 54 cents per share, a year earlier.

Excluding items, the company earned US$1.41 per share.

Total revenue rose to US$8.81 billion from US$5.84 billion.