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Earnings Results: Facebook shares rise toward record on big jumps in sales, earnings from advertising

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Facebook Inc. shares rose 6% in extended trading Wednesday, to what would be a record high if gains hold up in Thursday’s regular session, after it announced better-than-expected first-quarter results.

The social-media giant said it earned $9.5 billion, or $3.30 a share, against expectations of $2.35 a share, according to analysts polled by FactSet. Facebook’s
FB,
+1.16%

revenue improved 48% to $26.2 billion, beating estimates of $23.73 billion.

“We had a strong quarter as we helped people stay connected and businesses grow,” Chief Executive Mark Zuckerberg said in a statement announcing the results. “We will continue to invest aggressively to deliver new and meaningful experiences for years to come, including in newer areas like augmented and virtual reality, commerce and the creator economy.”

Still, Facebook Chief Financial Officer Dave Wehner warned of “headwinds” in the second half of the calendar year.

“In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to significantly decelerate sequentially as we lap periods of increasingly strong growth,” Wehner said in a statement. “We continue to expect increased ad-targeting headwinds in 2021 from regulatory and platform changes, notably the recently-launched iOS 14.5 update, which we expect to begin having an impact in the second quarter. This is factored into our outlook.”

Monthly active users, a key barometer of Facebook’s growth globally, improved 10% to 2.85 billion, compared with expectations of 2.86 billion. Daily-active users in the U.S., though, remained flat at 195 million.

Facebook, like Google parent Alphabet Inc.
GOOGL,
+2.97%

GOOG,
+3.16%

and Snap Inc.
SNAP,
+2.53%

before it, benefited greatly from a wave of online advertising as more small businesses use social media and search to reach consumers during the pandemic. More than 200 million businesses use a Facebook tool, the company said. Advertising, which accounts for nearly all of Facebook’s sales, soared 46% to $25.4 billion.

Non-advertising revenue from e-commerce, and AR/VR continued to grow, roaring 146% to $732 million. During a conference call with analysts late Wednesday, Zuckerberg repeatedly referred to augmented reality and virtual reality as the next frontiers for its billions of users to communicate.

Read more: Facebook used the pandemic to develop non-advertising business, while ad money kept pouring in

It isn’t all smooth sailing for Facebook, however. Antitrust and Apple Inc.
AAPL,
-0.60%

pose immediate challenges in vastly different ways. While the Federal Trade Commission, state attorneys general, and federal lawmakers hone in on the acquisitions of Instagram and WhatsApp, changes to Apple’s iOS 14 that require apps to ask for permission to track people’s activity online compromise Facebook’s ad business.

“We think investors remains nervous around several overhangs around Facebook, and we expect the largest headwind — iOS 14.5 data headwinds — to begin to fade and for an improving outlook around 2H growth, despite tougher comps,” Deutsche Bank analyst Lloyd Walmsley said in an April 27 note that maintained a price target of $385.

Facebook shares are up 12% so far this year, while the broader S&P 500 index 
SPX,
-0.08%

has gained 11% in 2021.

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