Facebook Shares Fall Amid Sharp Rise In Costs

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Social networking giant delivers strong financial results, but investors took fright at big increase in expenses and costs

Facebook has delivered a strong set of fourth quarter and ear-end results, which shows impressive growth both on the financial front, but also in daily and monthly active users.

But shares in the company fell more than 7 percent after Facebook reported rising costs and expenses, as well as a narrowing operating margin.

The firm is having to contend with a number of issues, including growing concern about online privacy, data protection, and political interference. Earlier this week Facebook opened up about how its independent oversight board will work, which is expected to make final decisions about objectionable content on the social platform.

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Strong financials

Facebook has posted what on the surface looks to be impressive quarterly and annual results.

For the fourth quarter ending 31 December, Facebook posted a net profit of $7.3bn up 7 percent from the $6.9bn it posted in the same year-ago quarter.

Revenues for the quarter rose 25 percent to $21bn from $16.9bn previously.

But there was a bit of mixed news in the annual results, with profit for the year falling 16 percent to $18.5bn from $22bn in 2018.

Annual revenues however rose 27 percent to $70.7bn from $55.8bn in 2018.

“We had a good quarter and a strong end to the year as our community and business continue to grow,” said CEO Mark Zuckerberg. “We remain focused on building services that help people stay connected to those they care about.”

Facebook also revealed that daily active users (DAUs) were 1.66 billion on average for December 2019, an increase of 9 percent year-over-year. Monthly active users (MAUs) were 2.50 billion as of December 31, 2019, an increase of 8 percent year-over-year.

Investor concern

So why the big fall in Facebook’s share price?

Well, Facebook also reported a significant increase in both its costs and expenses.

For example, headcount at the firm was 44,942 as of 31 December, which is increase of 26 percent year-over-year.

That large headcount increase will partly explain a 51 percent rise in annual costs and expenses to $46.7bn from $30.9bn in 2018.

But Facebook is also having to factor in pay-outs for legal challenges, including a $5bn penalty imposed by the Federal Trade Commission last July for the Cambridge Analytica scandal.

Facebook has still got to pay this fine pending court approval.

And the platform is having to factor in that companies such as Google and Apple have added more tracking protecting into their respective browsers (Facebook’s revenues are mostly derived from advertising).

Quiz: Think you know all about Facebook?

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Author: Tom Jowitt
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