No faking it, Facebook rakes it in

The social network crushes fourth-quarter earnings expectations even as it continues to grapple with fake news.

Richard Nieva Former senior reporter
Richard Nieva was a senior reporter for CNET News, focusing on Google and Yahoo. He previously worked for PandoDaily and Fortune Magazine, and his writing has appeared in The New York Times, on CNNMoney.com and on CJR.org.
Richard Nieva
4 min read
Watch this: Facebook rakes in the money

Facebook may be fighting a fake news problem, but it's making real money.

For months, CEO Mark Zuckerberg has grappled with big questions about the social network's role in the media industry. Things like: What's the company's responsibility in curbing the spread of misinformation? Is the onus on Facebook to present people with different political perspectives, so they don't develop a weird view of the world that everyone thinks like they do?

All that may amount to something of an existential crisis, but there's one really important area where Facebook doesn't have to worry, at least for now: Raking in money.

On Wednesday, five years after Facebook announced its IPO, the company reported sales of $8.81 billion in the three months ended December 31, beating analyst estimates of $8.51 billion. Profit, minus some costs, was $1.41 a share. Analysts were counting on $1.31 per share.

The company also said the number of people using its platform base grew to 1.86 billion, from 1.79 billion a quarter ago. To put that into perspective, that means almost two out of every seven people on the planet are using Facebook each month.

"Our mission to connect the world is more important now than ever," Zuckerberg, said in a statement. "Our business did well in 2016, but we have a lot of work ahead to help bring people together."

The company's shares rose almost 3 percent in after-hours trading.

Facebook has been frenemies with the media industry for years, but the tension reached fever pitch after Donald Trump's election in November. Some of Trump's critics blamed Facebook for not doing enough to fight fake news stories that were pro-Trump. Others said the social network had a hand in putting blinders on voters, since Facebook's algorithms seem to highlight articles that align with people's views.

The company tried to atone for its shortcomings in the past few months. In December, they offered up a plan to combat fake news that includes partnering with third party fact-checkers and making it easier to for people to flag stories that may be false. Facebook also changed its "trending topics" feature last week. Instead of seeing a list of news stories personalized to your individual tastes, everyone will see the same set of articles -- a move that seems to be part of an effort to present people with more diverse viewpoints.

"We're approaching fake news and hoaxes the same way" the company has tried to stamp out spam and clickbait, Zuckerberg said on a conference call with analysts Wednesday.

Rocky road ahead?

But while Facebook's been able to lean on its stellar numbers up until now, that may not last forever.

On Wednesday, the company said it made $8.63 billion in advertising, and 84 percent of that came from mobile ads. But in November, CFO David Wehner warned of a "meaningful" slowdown in ad growth in the second half of this year.

What does that mean? Scroll down your Facebook news feed, and you probably won't get very far before seeing a "promoted story" or some other kind of ad. Facebook is reaching the threshold of how many ads it can cram into people's news feeds without users getting too annoyed -- and that might affect how much money Facebook makes.

To fight against that, Facebook has experimented with placing ads elsewhere, including in Facebook Messenger. The chat app is now used by a billion people.

Snap's attack

Facebook is also gearing up for a battle with Snap, the parent company of Snapchat, its most formidable rival in social media. The young upstart is expected to file for its long-awaited IPO this week.

Snapchat has a rabid and loyal fan base (about 150 million monthly users, most of them young people). Facebook is trying to duplicate some of that cool. Zuckerberg's most blatant attempt was cloning Snapchat's most popular feature, Stories. It lets people post strings of videos and photos that disappear after 24 hours. In August, Facebook-owned Instagram debuted its own feature, called Stories, too, and didn't even bother to change the name. Facebook itself is testing the same feature in Ireland, called, you guessed it, Facebook Stories.

Zuckerberg hasn't been shy about capitalizing on the camera-first approach Snapchat made popular.

"Soon, we believe a camera will be the main way to share," instead of the traditional text box, Zuckerberg said last quarter. "We think it's pretty clear video is only going to become more important."

On Wednesday, Zuckerberg elaborated more on the future of video on Facebook.

He said the company is interested in videos that users upload for their friends to see, as well as professional content. He also said he'd like Facebook to be a place people think of when they want to watch new videos, and return to for "episodic content," a possible hint that Zuckerberg could be trying to make the site more akin to Netflix or YouTube.

But Zuckerberg said the focus isn't on long-form videos just yet. "We're focusing more on shorter-form content to start," he said.

First published on Feb. 1, 2017, 1:13 p.m. PT.
Updated, 3:46 p.m. PST:
Adds details from Facebook's conference call with analysts.

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