Facebook's earnings leap, but shares fall

Facebook (FB) CEO Mark Zuckerberg's 2018 New Year's resolution for the ubiquitous social network was to fix it. In a candid admission that his company is falling short in some critical areas, he said: "We currently make too many errors enforcing our policies and preventing misuse of our tools."

Unfortunately for Zuckerberg, even though Facebook's fourth-quarter 2017 earnings handily exceeded expectations, investors are focusing more on the potential negative effects of some of the fixes Facebook is making. 

The Menlo Park, California-based company said it earned $4.27 billion in the quarter, giving it a profit of $1.44 per share. Adjusted for pretax expenses, earnings came to $2.20 per share. The results surpassed Wall Street forecasts. The average estimate of 14 analysts surveyed by Zacks Investment Research was for earnings of $1.96 per share.

The social media company posted revenue of $12.97 billion in the period, also exceeding analyst forecasts. Twelve analysts surveyed by Zacks expected $12.58 billion.  

However, the report also contained an explicit warning from Zuckerberg.

"In total, we made changes that reduced time spent on Facebook by roughly 50 million hours every day," he said in a statement. "By focusing on meaningful connections, our community and business will be stronger over the long term."  

Investors' immediate reaction to that news was to sell. The shares sank around 5 percent, or $9.40, to $177.56 in after-hours trading following Wednesday's regular trading close at $186.89.

Not long after Zuckerberg's vow for fixing things in 2018 came one of Facebook's biggest -- and riskiest – adjustments: changing what goes into users' News Feeds. The company decided to give more weight to user-generated content over articles distributed by news sites, brand advertisers and video producers in order to create what the CEO described as a more "meaningful" experience.

That move didn't go over well with publishers, which feared losing the traffic they've come to rely on from those News Feeds. Investors also reacted negatively when this news came barely three weeks ago, knocking the stock price down from $188 to $179 the next day. That followed Zuckerberg's initial warning the changes could trim the amount of time users spend on the social network, which would also be likely to trim its revenues.

The financial impact of the revamped News Feed won't be reflected until Facebook's next earnings report, for first-quarter 2018. But it won't be the only change that could have some effect in that regard.

Just yesterday, Facebook announced that it's banning ads for bitcoin, initial coin offerings and others related to cryptocurrencies, whose meteoric rise last year caught many investors and the financial industry by surprise. 

However, it's more likely that the impact of this change will be felt far more by cryptocurrency-related companies than by Facebook.

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• Mark Zuckerberg

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