Facebook’s Q4 profit jumps 53% on strong advertising business

The platform’s daily active users surged 11% yearly to reach 1.8 billion

Facebook's net profit surged to $11.2 billion in the fourth quarter of 2020. AP

Social networking company Facebook reported a 53 per cent year-on-year rise in fourth quarter net profit as its advertising business boomed in the second half of 2020.

Net profit surged to $11.2 billion in the three months to December 31, almost 43 per cent up on quarterly basis. Revenue during the period soared 33 per cent to more than $28bn.

"We had a strong end to the year as people and businesses continued to use our services during these challenging times," Mark Zuckerberg, founder and chief executive of Facebook, said.

"I am excited about our product roadmap for 2021 as we build new and meaningful ways to create economic opportunity, build community and help people just have fun," he added.

Facebook’s stock was little changed in extended trading, after falling 3.5 per cent in New York to close at $272.14 a share. Its shares have gained almost 25 per cent in the past 12 months and close to 5 per cent since the start of this year.

The platform's daily active users grew 11 per cent yearly to reach 1.8 billion in the last quarter. Its monthly active users increased 12 per cent to 2.8 billion.

"Facebook’s active users grew more than expected and its fourth quarter sales jumped … thanks to a more prosperous advertisement business as online sales remain strong due to the extended pandemic and the new stay-at-home lifestyle," Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said.

While the pandemic upended many businesses globally, Facebook said its operations benefited from two trends playing out during the health crisis. These include the "shift towards online commerce" and the "shift in consumer demand towards products and away from services".

"We believe these shifts provided a tailwind to our advertising business … looking forward, a moderation or reversal in one or both of these trends could serve as a headwind to our advertising revenue growth," Facebook chief financial officer David Wehner said.

The company said it will continue to face "significant uncertainty" this year.

"We expect to face more significant ad targeting headwinds in 2021. This includes the impact of platform changes, notably [Apple’s] iOS 14, as well as the evolving regulatory landscape," Mr Wehner said.

While the timing of the iOS 14 changes remains uncertain, Facebook expects to see an impact late in the first quarter.

Changes to Apple’s iOS 14 software on the iPhone will require apps to ask for explicit user permission before tracking their activity. Mr Wehner said many users will opt out of this tracking.

Mr Zuckerberg criticised Apple for rolling out this new feature, saying it would make it harder for Facebook advertising customers to target their messages.

"Apple may say that they’re doing this to help people, but the moves clearly track their competitive interests," he said.

Facebook’s capital expenditure for the fourth quarter and the full 2020 fiscal year was $4.8bn and $15.7bn, respectively.

The company predicts 2021 capex to be in the range of $21bn to $23bn, driven by spending on data centres, servers, network infrastructure and office facilities.