Facebook Inc. (FB) - Get Facebook, Inc. Class A Report shares were indicated higher in pre-market trading Wednesday after the world's biggest social media group said near-term costs linked to keeping its website safe from fake news and data breaches, as well as pivoting its business towards messaging and video traffic, would be less than expected, softening the blow of weakening revenues.
Facebook in fact beat Wall Street estimates with third quarter earnings of $1.74 per share, but narrowly missed expectations for revenue growth with a top line of $13.73 billion as the number of global users across is myriad platforms rose to 2.6 billion. The company said 2018 expenses would rise between 50% and 55% from last year -- after topping $8 billion over the third quarter -- before easing to around 40% to 50% growth next year, with both estimates coming in lower than experts had anticipated. Facebook also said that users are likely to pivot towards messaging and video content, but the company will need to be faster and more accurate at finding ways to monetize that move without alienating or annoying them. That shift, Facebook said, would mean slower near-term revenues but a better longer-term business model.
"For one, we're seeing the way people connect shifting to private messaging and Stories," founder and CEO Mark Zuckerberg told investors on a conference call late Tuesday. "We have great products here that people love, but it will take some time for our business to catch up to our community growth."
"Two, we're seeing video grow dramatically across the ecosystem, and while Watch is now growing very quickly, we're well behind YouTube and still working to make this a unique people-centric experience," he added. "Three, we continue to face increased safety and security threats. We have significantly improved our systems here, but we have more to do."
Facebook shares were marked 6.3% higher in pre-market trading Wednesday, indicating an opening bell price of $155.00, a move that would trim the stock's year-to-date decline to around 13% and value the Menlo Park, Calif.-based group at just over $425 billion.
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Facebook said fourth quarter revenues would slow by a "mid to high single digit percentage" from the three months ending in September but that full-year capex would rise to as much as $14.5 billion, down from a prior estimate of $15 billion.
"The factors driving the revenue growth slowdown in the near to medium term - pricing impact from lower monetization products and regions, data privacy initiatives, as well as greater emphasis of Stories within the Feed which take away ad placement opportunities - are all long-term addressable factors as we have noted previously" noted Credit Sussie.
"Hence with management offering updated 4Q18 revenue and initial 2019 operating expense and capital expenditures guidance, we expect Street estimates to be rightsized for Facebook to return to a path of delivering upside and for FB shares to begin the troughing process." the bank added.