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Facebook plans to break out its VR, AR business

The social network reported its third-quarter earnings on the day that more stories surfaced about leaked internal documents.

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Facebook reported its third-quarter earnings on Monday.

Sarah Tew/CNET

Facebook didn't get a new name as widely expected, but the social network did unveil a new reporting structure. On Monday, the social media giant said it would begin reporting results as two businesses: its core family of social networking apps and its Facebook Reality Labs, which houses its augmented and virtual reality efforts.

Under the new structure, which will take effect for the company's fourth-quarter earnings, Facebook will provide revenue and operating profit for its Family of Apps and Facebook Reality Labs businesses. Family of Apps includes Facebook, Instagram, Messenger, WhatsApp and other services, the social network said in a statement. Facebook Reality Labs will include augmented and virtual reality hardware, software and content.

CEO  Mark Zuckerberg has indicated that he sees the metaverse, an online social hub where avatars can meet, as central to Facebook's future. The company, which made the announcement as it reported mixed third-quarter earnings results, committed to spending $10 billion on Facebook Reality Labs this year and more in the future. 

The revamped structure followed reports that Facebook would change its name, speculation that comes as the company grapples with damning whistleblower allegations that it prioritizes profits over safety. Over the past several days, a group of news outlets has published a series of stories that suggest the company knows about the harm its platforms cause to the mental health of teenagers, democracy and developing countries such as India. The series, known as the Facebook Papers, are based on thousands of documents gathered by Frances Haugen, a former product manager, who has testified before both Congress and Parliament about the social media company. The stories follow a similar project by The Wall Street Journal that was also based on documents leaked by Haugen.

In his first public remarks since the Facebook Papers stories, Zuckerberg said he saw the reports as a "coordinated effort to selectively use leaked documents to paint a false picture" of the social network. The company, he said, is trying to balance free expression with reducing harmful content and privacy. More than 40,000 people work on safety and security and the company is on track to spend more than $5 billion on these efforts this year, he said. 

"The reality is these questions are not primarily about our business, but about balancing different difficult social values," Zuckerberg said. 

The leaked documents have prompted heightened scrutiny by lawmakers, who are looking at legislation to hold companies like Facebook more accountable. Facebook's Global Head of Safety Antigone Davis testified before a Senate subcommittee that the company has been focusing on how to update children's privacy regulation and other laws. 

Haugen, who first revealed herself as the Facebook whistleblower in October, has said she saw conflicts of interests between Facebook's business objectives and user safety during her time at the company. Facebook has said its internal research is being mischaracterized.

The social network unveiled its reporting structure change as it released its third-quarter earnings. The company reported $29.01 billion in third-quarter revenue, slightly below Wall Street's expectations of $29.6 billion. Facebook earned $3.22 per share, surpassing estimates of $3.18 from analysts surveyed by Thomson Reuters. Facebook had 2.91 billion monthly active users, up 6% from the same period last year.

Facebook said it expects the coronavirus pandemic and Apple's privacy changes to hurt its ads business. Apple's App Tracking Transparency requires users to give apps permission to track their internet activity and has impacted ad targeting more heavily than many companies expected. Last week, Snap saw its stock plunge by roughly a quarter after missing revenue estimates and warning of slower growth.

Facebook said it expects its fourth-quarter revenue to be between $31.5 billion and $34 billion, which is in line with estimates of $34.8 billion. The company's stock is up 4% to $342.60 per share in after-hours trading.