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Facebook Earnings Beat Views, Company Will Break Out Reporting Segments

Facebook (FB) reported third-quarter earnings late Monday that beat expectations — though revenue fell short — during one of the most thunderous periods in its history. Facebook stock climbed during late trading, as the company also said it will break out certain business units into separate reporting segments.




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The company reported adjusted earnings of $3.22 a share on revenue of $29 billion. Analysts expected earnings of $3.19 a share on revenue of $29.6 billion.

Facebook stock climbed 3%, near 339, during after-hours trading on the stock market today.

The social media giant reported daily active users of 1.93 billion, in line with expectations.

Facebook Breaking Out Reality Labs

Also, Facebook said in the earnings release, “Starting with our results for the fourth quarter of 2021, we plan to break out Facebook Reality Labs, or FRL, as a separate reporting segment.”

Under this reporting structure, Facebook will provide revenue and operating profit for two segments. The first segment will include Facebook, Instagram, Messenger, WhatsApp and other services.

The second segment, Facebook Reality Labs, will include augmented and virtual reality related hardware, software and content.

“We expect our investment in Facebook Reality Labs to reduce our overall operating profit in 2021 by approximately $10 billion,” the company said in a news release. “We are committed to bringing this long-term vision to life and we expect to increase our investments for the next several years.”

Facebook currently faces an assault from all sides. It started late Thursday with a surprisingly bad quarterly earnings report from Snap (SNAP).

Snap’s report showed that iPhone privacy changes by Apple (AAPL) forced advertisers to pull back spending. Snap provided a fourth-quarter revenue estimate roughly 14% below analyst forecasts, and shares dropped 26.6%.

Resolving Key Concerns And Debates Over Facebook Stock

That also hit social media stocks across the board. Facebook stock plunged 5.1% on Friday. Shares are off 15% from their record highs in early September.

“All investors will be focused on clues to resolving concerns and key debates involving Facebook’s future growth,” Synovus portfolio manager Dan Morgan wrote in a note to clients.

“This includes a possible slowdown in ad spend rates after the Apple privacy changes. That made it harder to track consumer behavior on the internet,” he said. The impacts of supply-chain disruptions and labor shortages are also expected to crimp ad spending.

Additionally, Facebook expects fourth quarter revenue in a range of $31.5 billion to $34 billion. That’s below analyst estimates of $34.9 billion.

Snap, Facebook, Twitter (TWTR) and other social media companies get almost all their revenue from advertising. Twitter reports quarterly results late Tuesday.

More Damaging Articles

Some expected the earnings report to shed light on the impact of documents provided to the Wall Street Journal by whistleblower Frances Haugen. The Journal published its “Facebook Files” series last month.

Now, beginning late Friday and carrying into Monday, a series of damaging articles appeared via a consortium of 17 U.S. news outlets. The series of stories, collectively called “The Facebook Papers,” discuss a trove of hundreds of internal company documents supplied by Haugen. That was part of an explosive hearing and testimony before Congress from Haugen early this month.

“We believe many investors are already bracing for decelerating second-half revenue growth,” Jefferies analyst Brent Thill said in his note to clients prior to the Facebook earnings release.

Several large risks stand in the way of Facebook stock, he wrote. One is the Apple privacy changes and the reduction in ad performance, hurting earnings growth. In addition, the increased scrutiny on Facebook’s societal impact could slow user growth, particularly with younger demographics, Thill said.

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.

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