Facebook shares rebound after optimism about ad revenue

(Reuters) - Facebook Inc (FB.O) shares rose after hours on Wednesday after the social media network said that fewer hours spent on its flagship News Feed might would not necessarily hurt its highly profitable digital advertising business.

Shares of the company were up 1 percent at $188.64 after reporting quarterly results after the bell, reversing an earlier decline.

Chief Operating Officer Sheryl Sandberg told analysts on a conference call that recent changes to stem the spread of disinformation and sensational media on Facebook could be good for its advertising business.

“The impact it has on monetization is certainly not clearly negative,” Sandberg said on the call.

The comments from her and other executives appeared to reassure investors about the financial consequences of people spending less time on Facebook.

Sandberg said she was optimistic about potential revenue from ads on “stories” on Facebook and Instagram, while Chief Financial Officer David Wehner said the average price per ad increased 43 percent in quarter.

“They said average revenue per ad was up a lot, that quality of ads has improved, and that the engagement declines were not meaningful,” Wedbush analyst Michael Pachter said.

“In other words, better quality engagement and better ability to target ads. The street probably likes that,” he said.

Facebook said that time spent was falling at the end of last year by about 50 million hours a day, even before the company announced a series of changes to the News Feed that may further reduce user engagement.

Facebook’s 1.40 billion daily active users was up 14 percent from a year earlier, but below analysts’ estimate of 1.41 billion for the fourth quarter, according to financial data and analytics firm FactSet.

The number of daily users in the United States and Canada fell for the first time in Facebook’s history, dipping in the company’s home market by 700,000 from a quarter earlier to 184 million. Wehner said the number would “fluctuate” in the future.

Total revenue, though, showed little impact, rising 47 percent to $12.97 billion, while full-year revenue was also up 47 percent at $40.65 billion.

Total advertising revenue was $12.78 billion, compared with analysts’ estimate of $12.30 billion, according to Thomson Reuters I/B/E/S.

Wehner reiterated Facebook’s earlier guidance on expenses, telling analysts on the call that expenses would likely grow 45 percent to 60 percent during 2018. The spending spree includes new warehouses full of servers and thousands of new workers to review content posted by users.

Chief Executive Mark Zuckerberg this month described Facebook as being at a crossroads, as the world’s largest social media network seeks to stem the spread of disinformation in elections and in daily life.

Facebook sent a tremor through U.S. politics last year when it said that Russian agents used Facebook to try to sway American voters from 2015 to 2017, an allegation that Moscow denies. Facebook said 126 million Americans may have seen Russian-backed political ads and posts.

Facebook, founded in a college dormitory in 2004, has become one of the world’s most valuable corporations by selling internet ads that it puts in front of people on Facebook and on its Instagram unit.

Facebook shares were up 43 percent during the past year as of Tuesday's close. The S&P 500 Index .SPX rose 24 percent during the same period.

In the fourth quarter, net income attributable to Facebook shareholders rose to $4.27 billion, or $1.44 per share, in the fourth quarter ended Dec. 31 from $3.56 billion, or $1.21 per share, a year earlier.

Excluding a tax provision, the company earned $2.21 per share, topping analysts’ estimates of $1.95, according to Thomson Reuters I/B/E/S.

Facebook said it increased its provision for 2017 income taxes by $2.27 billion, citing U.S. tax changes.

Mobile ad revenue accounted for 89 percent of the total ad sales, up from 84 percent a year earlier.

Facebook is expected to take 18.4 percent of internet advertising worldwide during 2018, second to Alphabet Inc’s (GOOGL.O) 31.3 percent, according to research firm eMarketer.