Facebook expects rising costs to combat scandals after 2019 to decline

(Reuters) – Facebook Inc (FB.O) on Tuesday, investors were relieved of the forecast that margins will not contract after 2019 as scandals plummet and stocks continue to rise with record user growth despite a second quarter in a row.

CEO Mark Zuckerberg reiterated the company's warning that users' growing interest in private news, video and more secure content would increase costs "for some time" faster than revenue.

The same forecast three months ago sparked Facebook's biggest one-day sell-off, with some investors adjusting for poor results. Third-quarter performance and revised forecasts indicated that the downtrend would be slower after 2019, financial analysts said.

The Facebook share rose after updating the forecast by about 3 percent. They reversed the rate several times, falling as much as 5 percent during one hour of volatility, after closing on Tuesday and rising 2.9 percent to $ 146.22.

Facebook, Amazon.com Inc. (AMZN.O) and Google Parent Alphabet Inc (GOOGL.O) had suffered a stroke on Wall Street last month after a yearlong rally. The slowdown in growth has been a major concern, and Facebook's weak results have not overcome these fears.

"The best news was that the quarter was not a disaster," said Ivan Feinseth, an analyst at Tigress Financial Partners, Reuters.

The company estimated that revenue growth in the current quarter would slow compared to the last quarter, marking the worst performance since its IPO in 2012.

The main Facebook service and its Messenger siblings recorded a monthly increase of 2.27 billion, an increase of 10 percent over the previous year, but one percentage point below the expectations and pace of the last quarter.

Zuckerberg said that Facebook's problem is that users are more focused on features like direct messaging and video viewing than it's possible to place ads, attract clicks, and not annoy users.

In addition, most of the new users come from countries like India, Indonesia and the Philippines, where advertisers focus more on TV, print and outdoor advertising, according to Facebook executives.

Average revenue per US and Canadian user increased 6.7 percent year-on-year in the third quarter. The growth of users in the Asia-Pacific region was 4.6 percent.

FILE PHOTO: Figures can be seen in front of the Facebook logo in this image from March 20, 2018. REUTERS / Dado Ruvic

Although the factors slow down ad rates, Facebook also has significant unused business opportunities for new companies like WhatsApp. Nevertheless, Facebook said WhatsApp 2019 will not be a sales driver.

Some financial analysts fear that the company's operational problems are so great that revenue growth and cost containment will not be as expected.

The company announced on Tuesday that the misclassification of user activity had resulted in the monthly and daily users not being overstated.

In general, the reputation of the social network suffered from a data breach that affected 29 million users in September and a privacy scandal involving a UK political consultancy firm.

It has also been shaken by national and international information warfare at its service, including WhatsApp and Instagram, and a wave of executive departures.

Around 2.6 billion users interact with at least one of Facebook services every month. 2.5 billion was first released in the last quarter to make it clear that the potential audience for advertisers is unparalleled.

Facebook's spend has increased by licensing more engaging content, such as videos, and trying to protect against scammers and hackers.

Zuckerberg said the upcoming elections would be a test of his new systems, which he expects to be fully installed by the end of 2019.

"With a community of more than 2 billion people, we will see all the good and bad that humanity can do, and we will never be perfect," he said.

Total spending increased to nearly $ 8 billion in the third quarter, up 53 percent from a year ago. The operating margin, which Facebook says cut by 35 percent, fell 2 percentage points from the previous quarter to 42 percent.

The company estimated that expenditures for 2018 would increase by 50 percent to 55 percent over the previous year, reducing an earlier margin of up to 60 percent. According to forecasts, spending will increase by 40 to 50 percent in 2019.

Third-quarter revenue of $ 13.7 billion was 33 percent higher than the prior-year period and was in line with expectations of currency fluctuations.

Quarterly earnings of $ 5.1 billion, or $ 1.76 per share, increased 9 percent, outstripping the average $ 1.48 per share.

(GRAPHICS: Facebook sales growth loses steam – tmsnrt.rs/2CO7xgt)

Reporting by Munsif Vengattil in Bengaluru and Paresh Dave in San Francisco; Arrangement by Peter Henderson and Lisa Shumaker

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