Facebook: Zero impact on results by privacy scandal

Facebook Inc. continued to add users and saw revenue soar in the first quarter despite facing its worst crisis in company history over the mishandling of personal data belonging to millions of unsuspecting users.

The social network blew away Wall Street estimates by reporting a nearly 50 percent increase in revenue from the same period a year ago, to $11.97 billion. Analysts had expected a 40 percent increase to $11.4 billion.

Earnings per share reached $1.69, well above estimates of $1.35. Monthly active users totaled 2.2 billion and daily active users 1.45 billion, both meeting analysts’ expectations of a 13 percent increase from a year ago.

The earnings report followed weeks of tumult for Facebook, after a controversy erupted last month when The New York Times and other news outlets reported that millions of Facebook users’ private information had been harvested by Cambridge Analytica, a political firm with ties to the Trump campaign. The revelations drew alarm from regulators and lawmakers and Mr. Zuckerberg appeared at two congressional hearings in Washington this month to answer questions about Facebook’s role and responsibilities.

“Despite facing important challenges, our community and business are off to a strong start in 2018,” said Mark Zuckerberg, Facebook founder and CEO. “We are taking a broader view of our responsibility and investing to make sure our services are used for good. But we also need to keep building new tools to help people connect, strengthen our communities, and bring the world closer together.”

The results marked the company’s first quarterly earnings report since the Cambridge Analytica scandal erupted nearly six weeks ago.

The report was being closely watched for any signs of harm to Facebook’s bottom line amid a cascading controversy that has galvanized attention over privacy and sparked a backlash against behemoth tech companies.

Facebook said as many as 87 million users could have unwittingly had their data obtained by political consulting firm Cambridge Analytica through a third-party app.

The revelation set off a firestorm that resulted in testimony by Zuckerberg before lawmakers on Capitol Hill and an investigation by the Federal Trade Commission to determine if the company breached a 2011 consent decree over privacy.

Zuckerberg has repeatedly apologized for the breach, which triggered a sell-off in shares. Despite gains Wednesday, Facebook’s stock has slid 17 percent since an all-time high in February.

A boycott campaign popularized by the hashtag #DeleteFacebook stoked fears of an exodus that could leach to advertisers. At least three companies, Sonos, Commerzbank and Mozilla, pulled their advertising from the platform in response to the scandal.

Wall Street analysts were dubious the company would pay a heavy price — and its first-quarter results suggest they were right.

Analysts estimated that Facebook would report 1.45 billion daily active users the first three months of this year, compared with 1.4 billion the previous quarter. Analysts also expected monthly active users to rise to 2.19 billion, up from 2.13 billion in the fourth quarter.

The company’s revenue was expected to grow more than 40 percent from the same period a year ago, to $11.4 billion. Its net income was estimated to increase 30 percent from a year ago, to $1.35 a share.

In another sign public anger directed at Silicon Valley hasn’t hurt business, Twitter and Alphabet, Google’s parent company, also reported strong financial results this week.

Facebook faces other challenges. Next month, strict new European privacy regulations are set to take effect, which require tech companies to seek people’s consent before accessing their data. Facebook said that the rules, known as the General Data Protection Regulation, could lead to a decline in use in Europe.

“The first step for Facebook was to show that the problem is contained,” said Dan Ives, chief strategy officer and head of technology research for GBH Insights, a marketing research firm.

“A bigger worry for investors is what’s around the corner,” Mr. Ives said, noting that Facebook will need to prove that it is able to “navigate a more treacherous regulatory environment.”

In January, Facebook tried to soothe investors after announcing changes to its News Feed that demoted news in favor of updates shared by users’ friends and family. The company said then that it had experienced its first decline in the number of people who use Facebook on a daily basis in the United States and Canada; it also reported a dip in the amount of time spent on the platform. Mr. Zuckerberg said at the time that the changes would make Facebook more valuable over the long term.

On Wednesday, Mr. Zuckerberg said that the News Feed changes had worked largely as expected, increasing certain types of friends-and-family sharing while decreasing passive consumption of videos.

Mr. Zuckerberg also spoke about his trip to Washington to testify before Congress, saying it represented an “important moment” for the company. His testimony, which included fielding questions from members of Congress about Russian interference, political censorship and Facebook’s role in the developing world, was largely seen as a success within Facebook.