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Facebook Usage Slips As Profits Soar

Facebook shares fell 4% in after hours trading on Wednesday because it said people were not as ‘engaged’ as they were and less time spent on the platform, the shares then rose to end Wednesday up 3.5% as investors realised the drop in time spent was a rounding error.

Facebook said users time on its platform fell 50 million hours every day in the December quarter. Analysts said that’s bad news. But then they worked out that this was a tiny amount - the company has 1.4 billion daily users and 2.13 billion monthly users (both up 14% year on year).

The drop of 50 million hours a day sounds large, but isn’t when you consider the company has 1.4 billion daily users accessing the platform every 24 hours, the 50 million hours a day is a small proportion of total available user hours each day of 33.6 billion.

What was more interesting was Facebook's first hard estimate of fake and duplicate accounts:

"In the fourth quarter of 2017, we estimate that duplicate accounts may have represented approximately 10% of our worldwide MAUs (Monthly Active Users which totalled 2.13 billion at the end of December). We believe the percentage of duplicate accounts is meaningfully higher in developing markets such as India, Indonesia, and the Philippines, as compared to more developed markets. In the fourth quarter of 2017, we estimate that false accounts may have represented approximately 3-4% of our worldwide MAUs. Our estimation of false accounts can vary as a result of episodic spikes in the creation of such accounts, which we have seen originate more frequently in specific countries such as Indonesia, Turkey, and Vietnam,” the company said on Wednesday

That means Facebook thinks that about 63.4 million to 85 million of its active users are fake, and more than 213 million are duplicate accounts. The latter is quite high and can only be reduced by getting users to help in eliminating them.

So a more accurate MAU figure would be around 1.7 to 1.8 billion, which is still big and helps us understand why, for all the fretting about time spent on the platform, Facebook remains immensely profitable.

Net profit was $UUSS4.3 billion in the three months to December, up 19% year-on-year and for the year it was $US15.9 billion (up 56%). Sales were $US13 billion, 47% higher than the same period of 2016. Sales for 2016 were up 47% as well to $US40.65 billion.

Advertising was 89% of revenue, up from 84% at the end of 2016, so it is taking more money from established media. That remains the real story, especially for local media companies like Fairfax Media, Ten, Nine, Seven West, News Corp and others.

That is not to downplay investor concerns about rising costs and regulation (especially concerning fake news from Russia and other sources).

Late last year Facebook warned of a hit to future profitability from hiring 10,000 moderators who are being employed to tackle issues from violent and terrorist content to fake news and Russian (and other) disinformation.

In October, Facebook estimated that its costs would rise 45% to 60% in 2018, hitting margins as it also forecast slowing revenue growth.

There is a growing chance that Canada will introduce a tax on Facebook and Google advertising (and probably Twitter as well) in its new budget in late March to hep finance an aid package for the country’s dying newspapers. Canada also provides hundreds of millions of dollars of aid a year to local media via ad cost tax deductions and special funds.

Europe, and other countries) are looking to tighten regulation on Facebook, Google and perhaps other social media platforms), Australia has started in inquiry (ASIC) and Facebook itself is changing the content on its news feed to reduce the amount of material from publishers (all publishers) and to increase material more related to each user.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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