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Facebook sees earnings grow but warns Apple iOS changes could hurt business

The social network says upcoming privacy changes to iOS could weigh on its ad business.

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- 04:39
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Facebook reported its fourth-quarter earnings on Wednesday. 

Image by Pixabay/Illustration by CNET

Facebook saw revenue jump 33% in the fourth quarter as businesses relied on social networks to attract customers stuck at home because of the coronavirus pandemic. The company warned, however, that privacy changes to Apple's popular iOS mobile operating system could weigh on its ad business in the future.

"As COVID continued to keep many of us apart and at home, people and businesses continued relying on our services to stay in touch and create economic opportunity," Facebook CEO and co-founder Mark Zuckerberg said during a call with analysts on Wednesday. 

The strong performance came as the world's largest social network ramped up efforts to combat election misinformation in the run-up to the US presidential election, which fell in the middle of the quarter. Facebook temporarily stopped running US political ads after polls closed on Nov. 3, though those ads make up only a small part of the company's overall revenue.

Facebook's growth comes as the social network faces the threat of new regulation, which could crimp its business. Democrats and Republicans have proposed making changes to Section 230, a federal law that shields internet companies from lawsuits for content their users post. Republicans complain that Facebook censors conservative speech, while Democrats say it doesn't do enough to combat hate speech. The company has denied claims of political bias and has been improving its AI to detect hate speech. 

In its earnings release, Facebook didn't comment on its controversial ban of President Donald Trump, which took place after his supporters stormed the US Capitol in a deadly insurrection on Jan. 6. The ban, which took place after the fourth quarter had ended, is being reviewed by Facebook's independent oversight board.

Meanwhile, Facebook is trying to reduce the amount of political content people see on their News Feed because users don't want politics to dominate their experience on the social network. The social network also plans to stop recommending civic and political groups to users in "the long term" and expanding that to other countries outside of the US, Zuckerberg said. 

"We'll have to balance this carefully because we have a deep commitment to free expression. So I believe that if people want to be able to discuss this stuff or join groups there, they should certainly be able to do that," he said.

Heightened scrutiny of Facebook hasn't discouraged people from using the social network, which has become a mainstay for keeping in touch with family and friends stuck at home because of the pandemic. The captive audience has made the social network an attractive place for advertisers.

Roughly 2.8 billion people logged into Facebook every month during the quarter, a 12% jump compared with the same period last year. The social network, though, saw a drop in the number of people in the US and Canada who logged onto the platform daily. Facebook had 195 million daily active users in that region, which was a million less than the number of US and Canadian users it had in the third quarter.

Debra Aho Williamson, an analyst with eMarketer, said US and Canadian users might be spending more time on other social media apps. "One logical destination is TikTok, which has grown rapidly in 2020 and has some of the strongest user engagement, in terms of time spent, among all the social platforms we follow," she said. 

Facebook's fourth-quarter revenue jumped to $28 billion, beating expectations of $26.4 billion. The company earned $3.88 per share, better than the $3.21 per share analysts surveyed by Thomson Reuters anticipated. 

iOS privacy challenge ahead

Facebook said it expects the company's ad targeting to be impacted by Apple's upcoming privacy changes in the first quarter of 2021. 

"While the timing of the iOS 14 changes remains uncertain, we would expect to see an impact beginning late in the first quarter," Facebook CFO David Wehner said in a statement. Facebook's stock slightly dipped in after-hours trading but is now slightly up less than 1% at $273.81 per share. 

During the earnings call, Zuckerberg doubled down on the company's criticism of Apple, which the social network sees as a big rival in messaging. Facebook owns WhatsApp and runs its own messaging service Messenger. 

"We have a lot of competitors who make claims about privacy that are often misleading," he said.

Zuckerberg said he thought WhatsApp was "clearly superior" because "iMessage stores non-end-to-end encrypted backups of your messages by default unless you disable iCloud." When messages are end-to-end encrypted they can't be viewed by anyone outside the sender and recipient. That means that the government and Apple have the ability to access people's messages, Zuckerberg said. 

In December, Facebook ran several ads claiming that Apple's change would harm consumers and small businesses. Apple plans to release a new feature called App Tracking Transparency that would require people to opt in to apps collecting their data rather than needing them to opt out. Announced last June and originally expected later in the year, the feature's rollout was delayed to 2021. Apple didn't immediately respond to a request for comment, but the smartphone maker has pushed back against Facebook's characterization of the changes, stating that it is just giving users more control over their data. 

"Facebook can continue to track users across apps and websites as before, App Tracking Transparency in iOS 14 will just require that they ask for your permission first," Apple CEO Tim Cook tweeted in December.