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Facebook Inc (FB) Warns Drop In Profits As It Ramps Up Security Spending

Facebook Inc (NASDAQ:FB) revenue increased 47%, the company said, announcing its latest financial report on Wednesday, but the good news came with a warning note. The company stated that in the coming quarters the earnings might take a hit due to rising investment in cyber security. However, the social networking site stated that would not deter the company from taking steps to curb abuse on the platform.

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Protecting community is more important than Facebook revenue

Facebook Inc (FB) revenue from advertising, which increased 49%, has been the major contributor of Facebook Inc (FB)’s overall revenue. Further breakup of the advertising revenue suggests that mobile advertising contributed around 88%. Facebook’s advertising policies, however, have been under constant fire over the past few months after the revelation of Russian sponsored ads to induce differences between Americans during the Presidential elections.

Facebook Inc (FB) CEO Mark Zuckerberg said the company “is doing well, but none of that matters if our services are used in ways that don’t bring people closer together.” Further, Zuckerberg said that they are very serious about preventing abuse on Facebook Inc (FB), and that is why the company is investing so much in security that “it will impact our profitability. Protecting our community is more important than maximizing our profits.”

“I wanted our investors to hear that directly from me,” Zuckerberg said during the earnings call. Facebook has also stated that the workforce entrusted with weeding out fake news and hate speech from the platform will increase 100% to 20,000 by the end of next year.

According to The Telegraph, Norm Johnston, global chief digital officer at WPP’s Mindshare said, “Facebook is facing an identity crisis over whether it’s a publisher or platform. What rules does it follow, and do those rules need to be rewritten for a new model that doesn’t fit historical ones?”

Is Facebook Inc (FB) doing the right thing?

CFO David Wehner noted that the operating expenses will surge as the company spends more on security and original content. Further, Wehner said that capital expenditure would double in 2018. Giving an idea of the increased expenses, Facebook Inc (FB) said it would grow between 45% and 60% in 2018 compared to the previous year. “We’re bringing the same intensity to these security issues that we’ve brought to any adversary or challenge that we’ve faced,” Zuckerberg said.

Investors, however, it seems did not like the profitability outlook as the stock was down in after-hours trading despite the fantastic earnings report. Facebook Inc (FB) now boasts of over 2 billion monthly users, an increase from 1.7 billion a year ago. The number of daily active users has also increased in the third-quarter to be around 1.4 billion. During the earnings call, Zuckerberg noted that they are making large-scale efforts in video content, artificial intelligence and virtual reality, among other areas.

It’s not just Facebook Inc (FB) who has been held answerable for the Russian interference in the election. The Senate Intelligence Committee has also questioned representatives from Google and Twitter. The companies have been asked to “do more” to identify how foreign actors were able to manipulate the messaging on the company’s platform.

In pre-market trading, Facebook Inc (FB) shares were down.