Facebook (FB): Three key points of note in the Q4 earnings report

Facebook Inc. (NASDAQ: FB) delivered strong results for the final quarter of FY2020 beating estimates on both revenue and earnings. The company saw year-over-year growth in usage and significantly benefited from small businesses building an online presence to carry on their trade during the COVID-19 pandemic.

Revenues increased 33% year-over-year to $28 billion, helped by a 31% increase in advertising revenues. Other revenues more than doubled during the quarter to $885 million. Profits jumped over 50% in Q4. However, the company expects to face headwinds to its ad revenue growth in FY2021 due to various factors.

On its quarterly conference call, Facebook outlined three key points with regards to the content on its platform, its competition and its outlook.

No politics

One of the main themes Facebook is focused on this year is communities. A large number of people use Facebook to connect in groups for both their small and specific needs like parenting or for something larger like running community institutions.

Facebook wants these groups to function in a healthy and positive environment and as part of these efforts, the company has cracked down on groups that promote violence or hate speech. In September, the company said it had removed over 1 million groups over the past year alone.

To promote a positive atmosphere on its platform, Facebook plans to stop recommending civic and political groups globally as well as reduce the amount of political content on News Feed.

Facebook has for long faced flak for not doing enough to tackle toxic content on its platform as well as for alleged censorship of conservative views. It remains to be seen how these efforts play out in terms of both these factors.

Apple

On its earnings call, Facebook called out Apple (NASDAQ: AAPL) with the former terming the latter’s privacy claims as “misleading”. Facebook claimed that through the settings of iMessage and iCloud, both Apple and governments have access to users’ messages and went on to state that its product WhatsApp was better in terms of privacy.

Facebook referred to Apple as one of its biggest competitors and said Apple is using its dominant platform position to gain share in apps and services against Facebook and other developers which in turn was impacting the growth of millions of businesses globally. The company also said the changes in iOS14 will prevent small customers from reaching customers through targeted ads.

Ad business challenges

While a shift towards online commerce and higher consumer demand for products rather than services proved beneficial to the advertising business in 2020, looking forward in 2021, a reversal or moderation in these trends could pose challenges to ad revenue growth.

Facebook also faces headwinds to its ad business in 2021 from changes to iOS14 as well as changes in regulation. The company expects to see an impact from the iOS14 changes late in the first quarter. The changes in European regulation could also pose challenges in terms of data transfers and the impact of this on the company’s European operations are uncertain.

Click here to read the full transcript of Facebook’s Q4 2020 earnings conference call