Is Facebook your resilient friend? 5 things to glean from its Q1 earnings

26 Apr 2018

Facebook screen. Image: Sitthiphong/Shutterstock

Facebook reported a strong first quarter despite being engulfed by the Cambridge Analytica data crisis. What went right?

Facebook reported first-quarter revenues in 2018 of $11.9bn and revealed a 63pc surge in revenues as well as huge profits.

This is despite the 14-year-old company enduring a data scandal that would have finished off any other organisation.

However, it must be noted that the financial results come quite close on the heels of the Cambridge Analytica affair and, while they show no drop-off in revenue or user numbers, perhaps a more telling picture will be revealed in Q2.

“Despite facing important challenges, our community and business are off to a strong start in 2018,” said founder and CEO Mark Zuckerberg.

“We are taking a broader view of our responsibility and investing to make sure our services are used for good. But we also need to keep building new tools to help people connect, strengthen our communities and bring the world closer together.”

So, what did we learn?

1. Facebook grew its user numbers during the most tumultuous period in the social network’s history

That’s right. Daily active users were 1.45bn, up 13pc year on year. Facebook grew while the Cambridge Analytica revelations were being unearthed.

In total, Facebook has 2.2bn monthly active users, also up 13pc on this time last year.

However, this growth could have been so much more as Facebook is estimated to have lost 700,000 users in the US and Canada in the previous quarter. Again, keep an eye on Q2 because the real impact of Cambridge Analytica is likely to emerge.

2. It is a mobile money-making machine, but for how long?

As we said, the real impact of any backlash might not be apparent until Q2, when the dust truly settles. But Q1 shows a company that is in rosy financial health. Unbelievable financial health, truth be told.

Total revenues were up 49pc to $11.9bn, of which $11.7bn comes from advertising. That’s a cumulative 49pc jump on last year’s $8bn Q1 revenues. That’s a lot of money.

Mobile advertising revenue represented around 91pc of advertising revenue. That is $10.7bn in one quarter alone.

Let that sink in for a moment – Facebook is probably second only to Apple in terms of gleaning massive profits from smartphones. About 2.2bn people on the planet contribute to the ringing tills in Menlo Park every month by simply checking their messages and updating their statuses.

3. Facebook is rudely profitable

Again, some companies measure profitability in single-digit figures in terms of growth. Facebook reported a huge 64pc surge in profitability in Q1. This means that as the company came to terms with the scale of the Cambridge Analytica crisis, which rocked our sense of democracy and freedom in the 21st century, its shareholders were laughing all the way to the bank. Remember, people: if something is free, you are merely the product.

Not only that but the company has a lot of dough in the bank, with cash and cash equivalents of $43.9bn. That’s a considerable war chest for a 14-year-old when you consider how Apple, a company going back to the 1970s, has a war chest estimated at around $200bn.

4. Facebook employs a lot of people

The social media behemoth used to make a virtue of its diminutive status compared with other tech giants, claiming its small staff numbers made it operate more like a start-up and boosted its hacker culture.

Well, no more is this the case. Facebook saw its headcount increase 48pc year over year to 27,742 people. This includes 2,500 people at its European headquarters in Dublin’s Silicon Docks. And some of these already well-compensated workers are about to get a little richer as Facebook’s board of directors has authorised the repurchase of $6bn of Class A common stock. Cha-ching!

5. Facebook is reshaping itself to accommodate more regulatory scrutiny

During the quarter, Facebook’s ham-fisted efforts to appreciate or respond to the scale of the Cambridge Analytica problem were almost laughable, if not for the underlying seriousness of the matter and the potential impact on events such as the election of Donald Trump as US president or the UK’s dangerous and irreversible Brexit path.

With big data comes great responsibility.

In less than a month, the EU’s General Data Protection Regulation (GDPR) becomes law for hundreds of millions of Europeans who will have the right to sue if companies fail to respect their data rights.

GDPR sets down strict conditions for how companies such as Facebook manage data, and the company has already updated its terms and conditions for the EU as well as rolling out a snazzy new facial-recognition tool to inform users if their image is being used without their consent.

In recent weeks, Facebook made the dramatic decision to put 1.5bn users from outside the EU out of reach of the upcoming GDPR legislation.

That might be an agile decision for now but, with growing concern around the world, other nations may impose more onerous regulations that may make Facebook wish GDPR was a global standard.

How will you hack that, Zuckerberg?

Facebook screen. Image: Sitthiphong/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years