SAN FRANCISCO — It’s not every day that companies use their quarterly earnings reports to tout negative statistics.
On Wednesday, Facebook chief executive Mark Zuckerberg did just that. He said Facebook users in the fourth quarter spent 50 million hours less per day on the social network than the previous quarter, in part by reducing the number of viral videos people see — the consequence of Facebook's new push to prioritize the quality of interactions on its platform over the popularity of content. Those changes have also contributed to stalled growth in some places, including a slight drop in the number of U.S. users.
Facebook is still in an enviable position compared to most other companies. In the fourth quarter, the company’s operating profits grew by 61 percent, or $7.35 billion, and 14 percent more people log on each day than they did the previous year, the company said. Revenue jumped to $13 billion from $8.8 billion a year earlier. It beat analyst estimates for the 12th straight quarter.
Facebook's stock initially dipped in after hours trading, but later recovered. The company also reported a significant tax charge of $2.27 billion stemming from the congressional tax overhaul.
But Zuckerberg used the earnings call with Wall Street analysts to reiterate his focus on fixing Facebook as the company he founded faces a growing backlash. Facebook, like its Silicon Valley peers, is at a pivotal moment as Washington and the general public scrutinize tech's role on issues ranging from antitrust, the spread of disinformation and the negative consequences of tech overuse. Facebook recently admitted time spent passively scrolling on a person’s social media feed can cause harm to a person’s psychological well-being.
Zuckerberg has responded in part by shifting the company’s priorities toward valuing meaningful interaction instead of just sheer time spent on the platform.
"2017 was a strong year for Facebook, but it was also a hard one,” Zuckerberg said. “In 2018, we're focused on making sure Facebook isn't just fun to use, but also good for people's well-being and for society. We're doing this by encouraging meaningful connections between people rather than passive consumption of content.”
Zuckerberg insisted the changes, including a recently announced move to decrease the amount of content from news publishers and brands, would make the company healthier over the long term. But analysts seemed a little wary on the call, questioning the impact of the news feed changes.
Zuckerberg pushed back against the notion that the company had previously only prioritized the amount of time it could get people to stay on Facebook. “There’s this myth that we optimized news feed for time or likes or comments,” he said.
For years, he said, the company had surveyed people to ask them what type of Facebook content they found to be the most valuable. Now, he said, the company was starting to ask people what types of behavior, content or experience on Facebook created the most meaningful interaction. Those interactions could include experiences outside of Facebook, including a text message or a conversation in the real world, he said.
“We need to understand that,” he said, of the effort to study interactions. “We are going to be moving all these systems over time … it is not going to happen overnight.”
Victor Anthony, an analyst with Aegis Capital, said he does not expect the news feed changes to significantly reduce Facebook's revenue. “Advertisers still want access to those users,” he said. He added that advertisers will simply bid at higher prices to get their ads in front of Facebook's audiences, offsetting the potential losses if users continue to spend less time on Facebook.
In addition to the news feed changes, Facebook also touted its focus on security, saying it had doubled the number of people who work in that area. The company’s head count grew significantly over all, to more than 25,000 people.
The company said that its artificial intelligence tools to spot suicidal posts had helped first-responders reach more than 100 people, and that its AI tools also remove 99 percent of all content supporting the terrorist groups ISIS and al-Qaeda before they are flagged by Facebook users.
Zuckerberg emphasized a new effort toward ads transparency, saying the company also supports legislation known as the Honest Ads Act, which would require Internet companies to disclose political ads that run on their platforms. He said the company was planning to do so ahead of any possible legislation, and reiterated a commitment to begin publishing all political ads relating to candidates for federal office ahead of the 2018 midterm elections.
Colin Sebastian, a research analyst with Robert W. Baird & Co., said the perception of Facebook on Wall Street differs from the more fraught public image. “You read a lot of headlines about Facebook and social media being the equivalent of tobacco companies and that makes for good headlines, but I think the reality is a bit different,” he said.
Investors view Zuckerberg as proactive in addressing criticisms of foreign manipulation, and above it all, the company continues to deliver immense value to its customers, Sebastian said. “I don't see any decrease in demand from advertisers for advertising space on Facebook. There is no other platform where advertisers can reach such a broad and targeted audience.”
The news feed changes may provide Facebook with political and policy advantages. In a note to investors earlier this month, Laura Martin, an analyst at Needham & Company, said Facebook's shift toward more content from friends may keep potential regulations aimed at the company from gaining momentum. Relying less on publishers “immediately lowers its perceived power to spread 'fake news,' which lowers the risk of government intervention,” she said.