Recently, during the company's quarterly earnings call, Facebook CEO Mark Zuckerberg talked about the wave of coverage based on leaked internal documents. The company's results come amid what is possibly the worst crisis in the company's 17-year history. The Wall Street Journal's "Facebook Files" series was prompted by thousands of pages of internal Facebook documents leaked by whistleblower Frances Haugen, as well as additional news coverage by a consortium of 17 US news organizations on Monday, as well as hearings with US and UK lawmakers. The documents provide the most in-depth examination yet of several of Facebook's most contentious issues, including the struggle to regulate misinformation, the use of its platform by human traffickers, and research on child harm. Facebook has taken a strident stance against numerous reports, claiming that they are inaccurate and misrepresent their research and actions.
Zuckerberg issued a statement earlier this month in response to Haugen's Senate hearing, in which he attempted to discredit the whistleblower. Nonetheless, another former Facebook team member filed an anonymous complaint with the Securities and Exchange Commission on Friday, alleging similar allegations to those made by Haugen. Despite the negative media coverage, the company reminded investors on Monday that it remains a profitable machine. Facebook revenue of $29 billion for the three months ended in September, up 35% from the same period a year ago. Profits totaled nearly $9.2 billion, an increase of 17% over the previous year. The third quarter saw a 12 percent year-over-year increase in the number of people using Facebook's apps, to nearly 3.6 billion. The results were identical to those predicted by Wall Street analysts. Following the earnings report, Facebook's (FB) stock surged to a three-year high in after-hours trading on Monday before settling at around 1% higher. Facebook is not unfamiliar with public relations mishaps.
In most cases, despite public and regulatory outrage, Facebook's business has maintained a healthy growth rate. However, this time may be different. Facebook's massive advertising business is already vulnerable due to changes in Apple's app tracking rules. Apple's iOS 14.5 software update requires users to explicitly consent to apps tracking their behavior and selling their data to advertisers, such as age, location, spending habits, and health information. Facebook has fought the changes hard, warning investors last year that if many users opt-out of tracking, the company's bottom line could suffer. On Monday, Facebook warned that the changes to iOS 14 could result in "continued headwinds" in the fourth quarter of 2021. "We have been sincere about the fact that headwinds are on the horizon, and they were visible in Q3. The most significant effect of iOS 14 changes is" COO Sheryl Sandberg stated this during the company's earnings call on Monday. "As a result, we've encountered two issues: the decreased ad targeting accuracy, increasing the cost of driving results for our advertisers, and measuring those results has become more challenging."
While most of the world was focused on Facebook's real-world issues, the company hinted in its investor report that it prefers investors to look forward rather than back. Starting from the fourth quarter, Facebook Reality Labs, the company's division dedicated to augmented and virtual reality services, will be reported separately from the company's family of apps, including Instagram, WhatsApp, and the company's name-brand social network. According to Facebook Chief Financial Officer Dave Wehner, the company is investing so heavily in this newer division that "our overall operating profit in 2021 will be approximately $10 billion lower." Zuckerberg also addressed the future in a statement accompanying the results: "I'm excited about our roadmap, particularly as it relates to creators, commerce, and assisting in the metaverse's development."
Wall Street analysts asked questions about the new Facebook initiatives and products like the metaverse and Instagram Reels during the earnings call than they did about Monday's news coverage, demonstrating that investors frequently prioritize the company's growth potential over its risk of harm. Evercore ISI requested an assessment of the company's progress toward developing artificial intelligence capable of detecting potentially harmful content from Zuckerberg. "How much of the content on which we act is discovered by our AI rather than reported by humans," Zuckerberg said, referring to the company's quarterly transparency reports. "In the majority of these categories, we're identifying primarily through the AI system," he explained. "In the majority of these categories, we're identifying through the AI system." He, however, said the success of its systems varies according to category.