Facebook CEO Mark Zuckerberg once dismissed complaints that Russia had used the company's social media platform to manipulate voters before the 2016 presidential election as crazy.
A year later, after the Menlo Park, Calif.-based firm testified to Congress that 126 million users may have been fed Facebook content developed by Russian operatives, he recognizes the risk of false or distorted content created to influence an audience, and the cost of combating it.
To address the challenge, Facebook has begun promoting content from a user's family, friends and groups more than public content such as news and video, Zuckerberg explained to investors on an earnings call this week. It's also taking steps to ensure that news posts on its platform are from "broadly trusted and high-quality sources."
The shifts decreased the amount of time users spent on Facebook by about 5 percent in the three months through December, or about 50 million hours every day, he conceded. That helped drag the company's quarterly earnings 26 percent lower than the $1.94 average estimate from analysts surveyed by FactSet, though Facebook still delivered growth from the previous year.
Net income climbed 20 percent to $4.27 billion, while revenue increased 47 percent to $12.97 billion as the company raised advertising prices about 43 percent.
"I always believe that if we do the right thing and deliver deeper value, our community and our business will be stronger over the long term," Zuckerberg explained. Executives already know that time users spend with the platform's news feed, the stream of posts, photos and videos from their friends, is more valuable than hours passively watching video or reading news, for instance.
"When you care about something, you're willing to see ads to experience it," Zuckerberg said, "but if you just come across a viral video, then you're more likely to skip over it if you see an add. So I want to be clear: The most important driver of our business has never been time spent by itself; it's the quality of the conversations and connections. And that's why I believe this focus on meaningful social interactions is the right one."
Despite worry about how changes to its news feed algorithm and lower engagement will affect revenue, the company has shown an "ability to manage through" in last year's earnings reports, Credit Suisse analyst Stephen Ju, who has an outperform rating on the shares, said in a note to clients. "As earnings reports throughout 2018 play out, investors will take greater comfort that ad revenue growth will be relatively unchanged."
Facebook shares climbed 3.3 percent to $193 in New York trading on Wednesday, pushing this year's gains to 9.4 percent.