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Facebook Profits Defy Critics – Zuckerberg Vows Company Has Changed

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Mark Zuckerberg may have been feeling vindicated on Wednesday. 

After what’s been a horrible year for his company’s reputation, Facebook surprised Wall Street by posting record profits for its fourth quarter, and revenues that beat expectations.

The company reported earnings per share of $2.38, up from the $1.44 it reported a year earlier and also ahead of forecasts for $2.17. Net earnings for the quarter totalled $6.9 billion.

The company’s shares were up more than 8% to $162.3 in after-hours trading in New York, which will come as some relief to investors—Facebook’s stock has declined by roughly 30% in the past six months.

“We’ve fundamentally changed how we run this company,” Zuckerberg said on an earnings call, adding that Facebook had invested “billions of dollars in security.”

READ MORE | Zuckerberg to integrate WhatsApp, Instagram and Facebook Messenger

Wednesday’s results were in strong contrast to the flurry of criticism levelled at the company recently around its privacy practices, including from tech giant Apple. This week the iPhone maker blocked Facebook from distributing internal iOS apps that its staff used for testing new services, a major shot across the bow in what’s becoming a tense battle over privacy standards. 

But none of that seems to matter to Wall Street right now. Not only is Facebook’s bottom line rising, its user base is still growing too, countering much of the recent discourse about an exodus of users from the platform.

The company said Wednesday that 2.32 billion people were active each month across its platforms, including WhatsApp and Instagram, versus 2.27 billion the previous quarter.

The number of people using Facebook daily was up 9% from last year to 1.52 billion, led by growth in India, Indonesia and the Philippines, the company’s chief financial officer David Wehner said on an earnings call on Wednesday.

Wehner also sought to downplay the impact of critical press articles over the past year on Facebook’s business and growth. “I’d let the numbers stand for themselves,’ he said. “We are growing in all regions.”

Zuckerberg said that the Stories feature on Facebook and Instagram would be where some of the greatest potential lay for generating more advertising dollars, by also using artificial intelligence-powered software to target Facebook users more accurately. “Stories on FB is growing quickly,” he said, though he also admitted, “We started a bit later and execution wasn’t as great as it needed to be.”

Wehner evaded a question on the earnings call about how much time people spent on Facebook versus Instagram, sidestepping concerns that its flagship network is falling out of favor.

“The daily active user trends that we’re giving do paint the picture, which is stability in the developed markets and growth for Facebook Blue in developing markets,” Wehner said. “Time spent is not our focus, and our focus is meaningful social interactions. Daily active user trends tell the story broadly.” 

Advertisers, however, tend to spend more money on targeting users in developed markets, so even while signups to Facebook are growing in developing markets and even in the U.S., there may still be some concerns about return on investment if users in North America and Europe are spending only fleeting moments on the site. For now though, investors seem pleased enough with the growth numbers and the revenue beat.

Facebook's monthly active users continued to grow, reaching 2.3 billion in the fourth quarter of 2018.
Facebook’s monthly active users continued to grow, reaching 2.3 billion in the fourth quarter of 2018. GRAPHIC VIA FACEBOOK

Parmy Olson Forbes Staff

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Here’s How Much It Could Cost If We Stop Social Distancing

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Topline: This week, President Trump floated the idea of easing up on social distancing measures on the theory that the damage caused by shutting down the economy might be greater than the cost of letting the virus run its course—some models suggest, however, that reopening the economy too soon could be exponentially more expensive.

  • If the United States were to abandon aggressive social distancing measures after 14 days, more than 125 million people will contract the virus, some 7 million could be hospitalized, and 1.9 million people will die (accounting for other factors like infectiousness and hospitalization rates), according to a model built by the New York Times
  • If social distancing goes on for two months, the model predicts that 14 million will contract the virus, with fewer than 100,000 deaths.
  • There’s no debate that the broader economy is going to suffer even at the current rate of spread. Morgan Stanley is predicting a 30% drop in GDP next quarter. U.S. GDP is currently $21.43 trillion. A drop of 30% would mean a value-loss of more than $6.4 trillion (for context, the economic relief bill signed by President Trump this afternoon is worth about $2 trillion). 
  • If the outbreak worsens due to relaxed social distancing measures, it’s not unreasonable to anticipate even greater economic losses.
  • Economists can calculate the average value of one life saved using a model called the value of a statistical life. It’s a fuzzy metric used by some government agencies that is based on how much a person is willing to pay to reduce the risk of death. Right now, that figure hovers around $10 million.
  • “If we could prevent a million deaths, at the usual way we value [them] of around $10 million each, that’s $10 trillion, which is half of GDP,” says James Hammitt, a professor of economics in Harvard’s health policy department. 
  • University of Chicago economists have arrived at a similar conclusion: they’ve found that under “moderate” social distancing measures, 1.7 million lives and at least $7.9 trillion could be saved. 

Big number: The average cost of a hospital stay for a mild case of pneumonia is $9,763, according to Peterson-KFF analysis (pneumonia is commonly associated with COVID-19, the disease caused by the coronavirus). The median total cost balloons to $88,114 for the most severe cases that require more than four days of ventilator support. Seven million hospitalizations for patients with mild cases would cost more than $68 billion. If 17% of those patients required ventilator support, as was the case in one Chinese study, the cost of hospitalizations alone could add up to a staggering $161 billion, and that’s before the cost of other health complications related to the virus is accounted for. 

Crucial quote: “Anything that slows the rate of the virus is the best thing you can do for the economy, even if by conventional measures it’s bad for the economy,” University of Chicago economist Austan Goolsbee told the New York Times

Key background: In some ways, all of this discourse is more than a century old. A new paper released yesterday found that during the1918 flu pandemic—the closest historical analogue for the current coronavirus outbreak—cities that intervened earlier and more aggressively to slow the spread of the virus through social distancing and isolation of cases suffered no greater economic damage than those that didn’t. “On the contrary,” the authors write, “cities that intervened earlier and more aggressively experience a relative increase in real economic activity after the pandemic.” Seattle, Oakland, Omaha, and Los Angeles, for instance, implemented stronger containment measures than Pittsburgh, Nashville, and Philadelphia and all saw a much larger surge in job growth after the crisis was over in 1920. 

Tangent: Texas Lieutenant Governor Dan Patrick suggested earlier this week that grandparents might be willing to die to preserve the economy for their grandchildren. “No one reached out to me and said, ‘as a senior citizen, are you willing to take a chance on your survival in exchange for keeping the America that all America loves for your children and grandchildren?’” he said. “And if that’s the exchange, I’m all in.” His and Trump’s comments sparked a backlash among progressives on social media on Tuesday, when the hashtag #NotDying4WallStreet trended on Twitter as users voiced their fears of the pandemic, and of the government’s response to it. “I’ll let Wall Street flat line before my grandma does,” wrote one Twitter user. 

Sarah Hansen, Forbes Staff

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As Wealthy Depart For Second Homes, Class Tensions Come To Surface In Coronavirus Crisis

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Topline: As New York City’s coronavirus cases exploded in recent weeks, residents fleeing to second homes have come under intense scrutiny and push-back, prompting officials in multiple states to create highway checkpoints screening for New Yorkers and a national travel advisory for the entire Tri-state area, highlighting the dramatic roles class and wealth will play in the pandemic. 

  • With over 56,000 coronavirus cases in New York, privileged New Yorkers with secondary homes are fleeing the City with massive effect on vacation home communities: the population of Southampton has gone from 60,000 a few weeks ago to 100,000 and rental prices in Hudson Valley rocketed from $4,000 to $18,000 per month—posing a threat to small-town hospitals that are ill-equipped to handle caring for high numbers of coronavirus patients.
  • In wealthy New England island communities like Nantucket, Martha’s Vineyard and Block Island that are heavy with secondary homes and short on hospital infrastructure, officials are going so far as to cancel all hotel, Airbnb and VRBO reservations while stationing state troopers and the National Guard to maintain flow on islands and, in the case of Rhode Island, instating 14 day mandatory quarantine on all people traveling to stay in the state from New York, New Jersey or Connecticut.
  • As outrage has grown at the privileged fleeing the city while middle and working classes remain confined in New York City apartments, there’s been social media clapback at ostentatious displays of wealth in isolation: Geffen Records and Dreamworks Billionaire David Geffen ultimately deleted his Instagram of his $570 million megayacht captioned: “Sunset last night..isolated in the Grenadines avoiding the virus. I’m hoping everybody is staying safe” after it sparked outrage on social media.
  • New York City’s poorer boroughs are hit hardest by coronavirus: Brooklyn and Queens, where median income is  $56,015 and $64,987, respectively, remain the epicenter of COVID-19, compared to Manhattan with average income of $82,459, which has been less permeated by the virus and is home to many of Manhattan’s wealthiest enclaves—and those most likely to have residents with second homes elsewhere.
  • On Saturday, President Trump said he was considering quarantining parts of New York, New Jersey and Connecticut, then, backed down and issued a domestic travel advisory for the tristate area that discourages residents of these states from non-essential domestic travel after “very intensive discussions” at the White House on Saturday night, said Dr. Anthony Fauci on CNN today: “The better way to do this would be an advisory as opposed to a very strict quarantine, and the President agreed.”
  • “Due to our very limited health care infrastructure, please do not visit us now,” reads a travel advisory from Lake Superior’s Cook County in Michigan, exemplifying vacation towns’ plea to travelers and second home owners across the country to stay away. 

Background: Coronavirus cases in the United States have skyrocketed to 124,000, with deaths doubling from 1,000 to 2,046 in two days. Since those with COVID-19 can be asymptomatic for days, their presence in remote communities may be deadly, as they can spread the virus and wreak havoc on rural hospitals. The clash between wealthy and poor, also creates state-versus-state hostility, as federal support is limited and essential to states overcoming coronavirus.

Alexandra Sternlicht, Forbes Staff, Under 30

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Moody’s Downgrades South Africa To Junk

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Credit ratings agency Moody’s has downgraded South Africa to junk status on day 2 of the country’s nationwide lockdown.

President Cyril Ramaphosa’s economic reform plans have been slowed by the coronavirus pandemic. The downgrade adds salt to injury for South Africa as it currently struggles with a recession it slipped into in early March.

“The unprecedented deterioration in the global economic outlook caused by the rapid spread of the coronavirus outbreak will further exacerbate South Africa’s challenges” said Moody’s.

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