Facebook’s fourth quarter earnings were better than expected against a backdrop of growing political and regulatory challenges — but cited “significant uncertainty” as a problem for its massive ad revenue-generating machine.
Facebook earned $11.22 billion, or $3.88 per share, in the October-December period, well above the $3.19 that analysts expected and up 53% from a year earlier. Revenue grew 22% to $28.07 billion, higher than the $26.36 billion analysts were predicting, according to a poll by FactSet.
Its monthly user base grew 12% to 2.8 billion. Facebook ended 2020 with 58,604 employees, a 30% increase from a year earlier.
While Facebook does not break out how much it makes from Instagram, which it owns, eMarketer estimates that the app accounted for 36% of Facebook’s total advertising revenue and nearly half of its U.S. ad revenue.
Because revenue grew so quickly in the second half of 2020, the social network could have trouble keeping up that pace.
Apple privacy challenges
The company forecast challenges in 2021 that include a coming privacy update by Apple that could limit the social network’s ad targeting capabilities.
The Apple move drew a rare public rebuke from Facebook CEO Mark Zuckerberg, who during a conference call accused Apple of favouring its own interests and not those of users.
Facebook said its already enormous user base grew in the fourth quarter as people stayed home during the pandemic and reported revenues buoyed by a shift to digital advertising amid coronavirus-related economic uncertainty.
In the conference call with analysts, Zuckerberg came out swinging, saying Apple is fast becoming one of Facebook’s “biggest competitors” due in part to its dominance in messaging on the iPhone. Apple, he said, “has every incentive” to use its own mobile platform to interfere with how rival apps work.
Apple will soon require apps to ask users for permission to collect data on what devices they are using and to let ads follow them around on the internet. Facebook has been pushing back against the changes, saying those rules could reduce what apps can earn by advertising through Facebook’s audience network.
Of course, the Apple move also threatens Facebook’s own advertising revenue. Zuckerberg, though, focused on what he sees as Apple’s motives.
“Apple may say that they are doing this to help people, but the moves clearly track their competitive interests,” Zuckerberg said.
The social network also cited “significant uncertainty” stemming from the ongoing pandemic, and how that is likely to affect growth in the first quarter, even as the broad shift toward web-based commerce supports its business model. That comment helped knock over 4% from the stock in after-hours trading.
Aaron Goldman, CMO, Mediaocean, said: “With revenue up 33% to over $28 billion, Facebook’s Q4 performance reflects many of the patterns we saw with our advertisers. Throughout the quarter, there was a wide fluctuation among brands using Mediaocean’s closed ecosystems solution to manage ad campaigns on Facebook and Instagram. Some weeks had single digit growth year-on-year and some weeks were nearly 50%. Every single week showed positive growth, though, which was the first time we’d seen that over the course of an entire quarter last year. This demonstrates that Facebook stabilized its advertising base as brands looked to the platform to drive sales during the critical golden quarter to close out a difficult year. We saw particular strength in the cosmetics and electronics sectors – perhaps as people in lockdown sought to improve their images with new makeup and video equipment.
“So far in 2021, we’ve seen continued growth in January with peaks of 40% year-on-year spend increases across Facebook and Instagram. This is especially impressive considering the crises surrounding Facebook in the wake of the US Capitol riots. In addition to challenges with brand safety, Facebook faces concerns with US antitrust and Apple’s IDFA update. But, if we’ve learned anything about Facebook over the years, it’s that the platform is resilient when it comes to overcoming controversy as advertisers are reliant on it for reaching customers. Publishers are also increasingly reliant on the platform as evidenced by the rollout of Facebook News in the UK. Looking ahead, it’s clear that Facebook will remain an important part of the omnichannel advertising mix, especially as the worlds of social and commerce collide.”
President Yuval Ben-Itzhak, President, Socialbakers, said: “Facebook’s strong Q4 results come as no real surprise. Our data found that in Q4, global social media ad spend skyrocketed by 50.3% vs. the same quarter in 2019, with North America seeing an enormous 92.3% increase. This is evidence that brands were spending big in the ‘Golden Quarter’, and that Facebook’s family of apps remains the place where brands invest. It’s still the most effective place to engage with customers and drive online sales, especially during a holiday season where most people shopped online.
“Facebook’s consistent focus on innovation is key to this success. One we’re set to see more of is Live Shopping, with Facebook developing its own native tool as a replacement for the ‘in-person’ experience consumers now crave. This is a smart move, given Facebook Live is by far the most engaging format on the platform, with three times as many interactions as images and videos. If Facebook can find a way to monetise this format further, it’s likely to herald a new era of online shopping – and spell more good news for its ad revenues.
“Following an election season rife with misinformation and conspiracy theories, the only real thorn in Facebook’s side is user trust. It needs to work harder to communicate better with its billions of users – the recent furore over WhatsApp’s data sharing is a prime example of how quickly users can turn against social media platforms when communication isn’t clear. To keep users on side, and keep advertisers coming back for more, Facebook’s leaders should be focused just as much on building trust with its user base as with innovation. If they succeed, 2021 is likely to be the year Facebook soars even higher.”
Data from Socialbakers Q4 2020 Trends Report
Facebook’s worldwide ad spend increased by 50.3% in Q4 2020 compared to 2019. In Northern America, peak spend increased by 92.3%, while in Western Europe it increased by 39.6%.