“Despite facing important challenges, our community and business are off to a strong start in 2018,” Mark Zuckerberg, Facebook chief executive, said in a statement.
Facebook is at the most perilous moment in its 14-year history. The social network is weathering the fallout from a scandal over data privacy, in which the company’s lax policies enabled a Trump-affiliated consultancy called Cambridge Analytica to inappropriately siphon the private profiles of up to 87 million Facebook users. Facebook is facing several class-action lawsuits as well as a Federal Trade Commission investigation into its practices.
Its stock has dropped 14 percent since the controversy erupted. But the strong quarterly growth sent its stock price up more than 7 percent in after-hours trading Wednesday.
“This is probably the most important earnings they’ve had,” said Daniel Ives, chief strategy officer and head of technology research for the research firm GBH Insights. “In light of consumer outrage after Cambridge Analytica, there is massive pressure to show that their advertising model hasn’t been significantly impacted by the black cloud of the last few months.”
The company did not discuss whether it lost users as a result of the Cambridge Analytica controversy. Chief Operating Officer Sheryl Sandberg said a few advertisers stopped spending on Facebook in the weeks after the revelations, and that one advertiser had returned to the platform.
The biggest impact of this turbulent period was visible in Facebook’s expenses and costs. Executives expect expenses to grow considerably in the year ahead, as the company continued to hire more staff. Expenses were already up 39% due to a record number of new hires.
The company is also in the midst of a costly hiring spree as it beefs up security to address disinformation and other forms of manipulation of its platform. The company plans to hire around 10,000 additional workers, including content moderators around the world, to bolster this effort.
A recent study by the American Press Institute and the Associated Press-NORC Center for Public Affairs Research found that 12 percent of people trusted Facebook as a news source. Another poll by Axios and SurveyMonkey found that Facebook’s favorability fell 28 points in the past five months — more than twice as much as that of rivals Amazon and Google.
Last quarter, Zuckerberg touted surprising new metrics that people were spending fewer hours per day on Facebook — a consequence of the company’s new push to emphasize 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.
Overall growth on the platform is slowing, however. Last quarter there was a slight drop in North American users compared to the previous one. The company added 3 million users in the US and Canada between the first quarter of 2018 and the same quarter the previous year, reaching 185 million people. Between 2016 and 2017, however, growth was more robust, with the company adding 9 million North American users.
Some of those losses may ultimately be supplanted by Facebook-owned Instagram and WhatsApp, where user growth continues apace, but the platforms do not generate the revenue of Facebook.
Facebook is adapting to sweeping new privacy laws in Europe that give citizens a much more say in how their data is used. The law slaps technology companies that break the rules with steep fines of up to 4 percent of global profits. Facebook is pouring resources into preparing for these changes.
Facebook executives faced many questions from analysts about the impact of the European privacy rules. They anticipate that growth among European users will flatten or even decline slightly in the coming year as a result of the new laws, but that it won't have a significant impact on revenues.