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Facebook Shares Rise on Better-Than-Expected Holiday Quarter Earnings

Crisis? What crisis? Investors were undeterred by Facebook’s latest privacy mishaps, and sent the company’s share price up around 11% in after-hours trading following news of a substantial earnings beat.

Facebook generated revenue of $16.9 billion during the holiday quarter, compared to close to $13 billion during the same time a year ago. Net income was $6.9 billion, compared to $4.3 billion in Q4 of 2017. This translates to earnings per share of $2.38.

Analysts had expected revenue of $16.4 billion, and earnings per share of $2.19.

“Our community and business continue to grow,” said Facebook CEO Mark Zuckerberg in a statement. “We’ve fundamentally changed how we run our company to focus on the biggest social issues, and we’re investing more to build new and inspiring ways for people to connect.”

Facebook grew its number of daily active users to 1.523 billion for the quarter, up from 1.4 billion in Q4 of 2017. Notably, the company also managed to grow it’s North American user base for the first time in 2018, from 185 million daily actives in Q3 to 186 million in Q4. DAUs in Europe returned to 282 million, after slumping to a low of 278 million in Q3.

Zuckerberg disclosed Wednesday that Instagram’s Stories product now has more than 500 million daily active users. Chief operating officer Sheryl Sandberg added that Facebook’s Stories feature across its apps now has more than 2 million advertisers.

The company also said that around 2.7 billion people use Facebook, Instagram, WhatsApp, or Messenger every month, with 2 billion people using at least one of those apps every day. Chief financial officer David Wehner said that the company would eventually shift to only disclose these aggregate numbers, and not break out the usage of Facebook’s core app anymore.

Facebook still makes most of its money with advertising, but the company saw its non-advertising income increase notably, especially in North America, where it generated $187 million from “payments & other fees,” compared to  $121 million in Q4 of 2017.

Wehner confirmed Wednesday that this is related to Facebook’s hardware efforts gaining some steam. “Sales of Oculus Go and the launch of Portal contributed to the revenue growth in the quarter,” he said. The company didn’t reveal any concrete hardware sales numbers during Tuesday’s earnings call, but Zuckerberg said: “Portal has done better than I expected.”

Investors had been worried that Facebook’s move towards new app experiences and away from its core newsfeed would slow down its economic growth.  Wednesday’s earnings release did show that the company’s Q4 operating margin was significantly lower than in the last, to the tune of 46%, as opposed to 57% in Q4 of 2017.

Executives had previously told investors that new products like Stories and Facebook Watch may ultimately lead to Facebook’s margins declining that Facebook’s operating margin from the mid-forties to the mid-30% range.

Wehner reiterated that Facebook was in a transition period, especially with the growing importance of Stories. “We will be more reliant on Stories impression growth in 2019,” he said, explaining that this will lead to a deceleration of revenue growth.

However, at least for now, it doesn’t seem like the backlash against some of Facebook’s privacy mishaps is having any lasting impact. Asked about that very issue, Wehner simply quipped: “I’ll probably just let the numbers stand for themselves.”

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