Facebook quarterly profit up 17% despite whistleblower controversies

Net profit surged to $9.2bn in the three months to September 30

Facebook, which is facing intense scrutiny over its business practices, is reportedly planning to rebrand the company with a new name that focuses on the metaverse. Bloomberg

Facebook reported an annual 17 per cent jump in third-quarter net profit, driven by an increase in daily active users and strong advertising sales despite the platform facing multiple controversies that have led to calls for tighter regulation.

Net profit surged to $9.2 billion in the three months to the end of September. The company's net profit was down more than 11.5 per cent on a quarterly basis.

Revenue during the period rose 35 per cent to more than $29bn, missing average $29.6bn estimates made by analysts, according to Refinitiv.

“We made good progress this quarter and our community continues to grow,” Facebook’s founder and chief executive Mark Zuckerberg said.

Facebook and its billionaire founder have come under increasing criticism over the company’s practices and policies since whistleblower Frances Haugen spoke before Congress on October 5.

Ms Haugen, who began working for the company in 2019 and resigned in April 2021, has leaked thousands of internal documents to the Securities and Exchange Commission, Congress and several news outlets.

The former Facebook employee told a Senate commerce subcommittee hearing that Facebook algorithms promote posts with high levels of engagement, often pushing harmful or divisive content to users.

“My view is that what we are seeing is a co-ordinated effort to selectively use leaked documents to paint a false picture of our company,” Mr Zuckerberg said in a call with analysts.

“The reality is social media is not the main driver of these issues and probably can’t fix them by itself either,” he said.

The company's advertising sales, which jumped 33 per cent, contributed about $28.3bn to the company’s overall revenue. Revenue from other streams — including consumer hardware — rose 195 per cent on an annual basis to $734m.

Facebook’s stock rose about 2.8 per cent to $338 a share in after-hours trading. Its shares have gained almost 19 per cent in the past 12 months and close to 22 per cent since the start of this year.

In its financial guidance for the fourth quarter, Facebook expects total revenue to hover in the range of $31.5bn to $34bn.

The company’s outlook reflects the “significant uncertainty” it faced in the October-December period considering continued headwinds from Apple's iOS 14 changes and Covid-related challenges, Facebook’s chief financial officer David Wehner said.

Apple’s update to its operating system is intended to make it harder for advertisers to track people as they rotate between different apps on their device.

Users are given the choice to opt in or out of app tracking. This will restrict how technology companies such as Facebook and Google gather data for advertising purposes.

Facebook's daily active user base grew 6 per cent on an annualised basis to reach more than 1.93 billion in the previous quarter. Its monthly active users increased 6 per cent yearly to 2.91 billion.

The platform's capital expenditure, including principal payments on finance leases, in the third quarter was $4.5bn. It is expected to reach $19bn for the 2021 full financial year and stay in the range of $29bn to $34bn for the 2022 financial year, driven by the company’s investments in data centres, servers, network infrastructure and new office facilities.

The company has reduced the guidance of the 2021 financial year’s total expenses that will stay in the range of $70bn to $71bn from the earlier expectations of $70bn to $73bn.

It expects its full-year 2022 total expenses to be in the range of $91bn to $97bn, driven by investments in technical and product talent and infrastructure-related costs, said Mr Wehner.

Facebook saw an annual 20 per cent increase in headcounts in the third quarter to 68,177. Its cash and cash equivalents and marketable securities were more than $58bn as of September 30.

From the current quarter’s earnings, the company will break out Facebook Reality Labs (FRL) as a separate reporting segment.

Under the new reporting structure, Facebook will provide revenue and operating profit for two segments — its family of apps (including Facebook, Instagram, Messenger, WhatsApp and other services) and FRL (augmented and virtual reality-related hardware, software and content).

The company expects its FRL investment will reduce its overall operating profit in the current financial year by almost $10bn.

“I am excited about our road map, especially around creators, commerce and helping to build the metaverse,” Mr Zuckerberg said.

Last month, Facebook launched a $50 million fund to build a metaverse — a digital space that allows users to communicate and move virtually. It will invest in metaverse programmes and external research over the course of two years, the company said.