Zuckerberg aims for more Facebook control

2016-04-28 17:31
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Mark Zuckerberg

As Facebook CEO Mark Zuckerberg touts the social network's IPO, General Motors announced that it was pulling Facebook advertising. (Paul Sakuma, AP, file)

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Washington – Facebook’s chief executive officer Mark Zuckerberg picked a good time to ask for more freedom.

The company reported sales and profit that blew past analysts’ estimates, fuelled by businesses spending more to advertise in videos on its main mobile app. It was the latest in a string of strong earnings that have built up investors’ confidence in the company’s future.

The leader of the world’s largest social network took the opportunity to propose a new class of stock, subject to shareholder approval, that will help him maintain control and ensure he has the ability to keep spending on future technology, even as he gives his own shares away for philanthropic initiatives like seeking cures for disease.

Facebook’s first-quarter revenue, which grew 52% to $5.38bn, sent the stock surging toward a record in part because most of the company’s money is still made by one property - the main social network, which now has 1.65 billion users.

Facebook has yet to try to generate sales from newer chat applications like WhatsApp, which has one billion users, and Messenger, which has 900 million. Instagram, the photo-sharing app that opened up to advertising globally in 2015, is still early in its financial potential, the company said.

Ambitious bets

Meanwhile, Zuckerberg is investing in other, more ambitious bets, including virtual reality and artificial intelligence.

"I see more bold moves ahead of us than behind us,” Zuckerberg said. With the new stock structure, “I’ll be able to keep founder control of Facebook so we can continue to build for the long term.”

Profit excluding some items was 77c per share, the company said on Wednesday in a statement, compared with the 63c average analyst estimate compiled by Bloomberg.

Facebook is benefiting by owning some of the more popular mobile applications, with the average user spending 50 minutes a day on its properties, excluding WhatsApp, the company said.

With Instagram and video, “they’ve got these two huge tailwinds to their business,” Mark Mahaney, an analyst at RBC Capital Markets, said before the results. “But if you own Facebook stock you’re not buying it now because of what they can do with video ads or Instagram, you’re buying it because of the potential with their long-term bets like virtual reality.”

The new stock structure, if approved, will encourage Zuckerberg to remain involved in a leadership role at Facebook, even after pledging to give away most of his stock, the company said in a regulatory filing.

Facebook’s main competitor, Alphabet, issued a special share class in 2014 that gives Founders Larry Page and Sergey Brin a similar mix of company control and freedom to back risky new technologies. While some of Alphabet’s new bets have stumbled, Facebook must keep up to attract talented engineers capable of inventing new products and businesses.

Supportive

Investors seemed initially supportive of the new share class idea. Facebook stock jumped 10% to $118.60 in after-hours trading, putting it on course for a record when regular trading opens.

"A large part of Facebook’s success is due to Mark’s leadership and this proposal will allow us to maintain that founder-led approach that has served our shareholders well," chief financial officer David Wehner said in an interview.

The strong performance of Facebook’s existing and emerging businesses is keeping most investors happy for now. Adding ads to Instagram is expected to drive $1.53bn in revenue this year, or 15% of the company’s ad sales, according to eMarketer.

Facebook is expected to take about 18% of the $102.5bn mobile advertising market this year, eMarketer said. The company has also been investing in live video streaming and media content, aiming to make Facebook more of a place to find out what’s going on right now.

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