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Facebook Says It’s Cutting Down on Viral Videos as 2017 Revenue Tops $40 Billion

Facebook is cutting down on viral videos as it looks to improve the quality of time spent on the service, announced CEO Mark Zuckerberg as part of the company’s Q4 2017 earnings release Wednesday, which showed that the company surpassed $40 billion in revenue in 2017.

“Last quarter, we made changes to show fewer viral videos to make sure people’s time is well spent,” he said in the release. “In total, we made changes that reduced time spent on Facebook by roughly 50 million hours every day.”

“Helping people connect is more important than maximizing the time they spend on Facebook,” Zuckerberg added on the company’s earnings call. He said that the company would continue to implement quality changes. “That is likely going to continue this trend of decreasing passive consumption.” However, Zuckerberg also said increased interaction would also be good for Facebook’s business in the long run.

Facebook doesn’t typically disclose time spent as part of its earnings metrics. The fact that it did so this time, and to call out a decline, initially rattled investors. They were also scared by a slow-down in user growth, and sent Facebook’s stock down as much as 5% directly following the earnings release.

However, executives assured analysts and investors during the subsequent call that time spent alone isn’t translating to lost ad dollars. “All time spent on Facebook is not equal,” said Facebook CFO Sheryl Sandberg, who pointed out that interaction between friends and family would offer advertisers new opportunities.

Zuckerberg added to this by saying that Facebook would over time build new products and interfaces to encourage interaction between its users. That seemed to calm investors nerves, with stock bouncing back to a $2 after-hours gain.

That’s also because Facebook once again had a blockbuster year in 2017: The company revealed Wednesday that it generated $40.65 billion in revenue in 2017, compared to $26.89 billion in 2016. 

The company also beat revenue expectations for the quarter ending December 31: Facebook generated $12.97 billion revenue during the holiday quarter, compared to $8.8 billion during the same quarter in 2016. Diluted earnings per share came in at $1.44, compared to $1.21 the year before.

Analysts had expected that Facebook would generate revenue of $12.54 billion and earnings of $1.95 per share. Facebook explained the discrepancy on earnings per share with a $0.77 negative impact of the Trump tax cuts.

Facebook’s daily active users reached 1.4 billion in December of 2017, compared to 1.23 billion in December of 2016. Monthly active users were 2.13 billion, compared to 1.86 billion 12 months earlier. However, its U.S. daily active users declined from 185 million to 184 million on a quarter-to-quarter basis — the first time the company has seen such a decline.

Facebook has been changing the way it presents posts within its users news feed over the past couple of months, in part as a response to criticism that it had boosted false and misleading stories during the 2016 Presidential election.

Zuckerberg had already warned investors during the company’s Q3 2017 earnings call that some of these changes, including the hiring of many more employees to screen for inappropriate content, could impact the company’s bottom line. He reiterated that warning Wednesday, and said that improving the quality of Facebook would be his personal challenge for 2018.

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