Facebook Posts Slower Sales Growth With Apple Privacy Policy

Facebook also said Monday that it was changing its reporting structure to break out a unit called “Facebook Reality Labs” that encompasses augmented-reality and virtual-reality products and services. The move will separate results for that unit from the core business segment including its flagship Facebook platform and other apps such as Instagram. The company said it expects investment in Facebook Reality Labs to reduce its overall operating profit in 2021 by around $10 billion.

Third-quarter revenue reached $29.01 billion, up 35% from the year-earlier period but below the $29.56 billion that analysts polled by FactSet were expecting. That was the smallest increase since last year’s fourth quarter, and well below the 52% rate over the first half of this year.

Ad revenue declined slightly from the second quarter, including in the U.S. and Canada, its largest combined market segment. European sales also slid from the prior quarter.

In its July earnings report, Facebook warned that Apple’s privacy changes to its iOS operating system could crimp ad-targeting capabilities in the third quarter, as more people update their iPhones and iPads. Last week Snap Inc. blamed the Apple policy for an expected slowdown in revenue growth for the current quarter, leading its stock price to fall more than 20%.

Facebook’s third-quarter profit rose 17% to $9.19 billion, or $3.22 a share. The company said it had 3.58 billion monthly users, up 12% from a year earlier.

Facebook shares rose more than 3% in after-hours trading Monday, after ending the regular session up 1.3%. The company’s shares had retreated 5% last week after Snap reported the advertising issues related to Apple’s changes.

“Given the fear that was out there, this is fine, especially after Snap,” said MoffettNathanson analyst Michael Nathanson.

The social-media company kicks off a busy week of earnings for tech giants. Microsoft Corp. and Google parent Alphabet Inc. GOOG 0.11% are scheduled to report quarterly results after the bell Tuesday, with Apple and Amazon.com Inc. numbers due out Thursday. All are expected to post healthy year-over-year top-line growth, as consumers and businesses continue to embrace the digital products and services they offer.

Global supply-chain disruptions were expected to add to the sales growth slowdown for Facebook, according to Jefferies analysts, as vendors dealing with limited inventory curtail their ad spending. Still, the investment firm said the digital advertising is robust and that a new ad product offered on Facebook’s Instagram service has gone live, providing a new revenue stream.

Facebook said it expected sales this quarter of $31.5 billion to $34 billion, reflecting what it called “continued headwinds from Apple’s iOS 14 changes” and other factors.

The parent of Facebook, Instagram and WhatsApp also has been contending with other challenges. They include intense regulatory scrutiny in Washington and criticism by its own oversight board following a series of Wall Street Journal investigations, called the Facebook Files, into the company’s operations.

Last week the U.K.’s competition regulator fined Facebook £50.5 million, equivalent to $69.6 million, alleging it breached reporting requirements during a review of its proposed takeover of Giphy, an online provider of animated images. Facebook separately agreed to pay a financial penalty as part of settlements with the U.S. government. It had accused the social-media company of illegally reserving lucrative jobs for immigrant workers it was sponsoring for permanent residence instead of searching for and considering available U.S. workers.

Facebook Chief Executive Mark Zuckerberg lately has been promoting his vision for the metaverse, loosely defined as an extensive future online world where people exist and interact in shared virtual spaces through digital avatars.

He recently described the metaverse as the next generation of the internet and the next chapter for his company. Facebook said last week that it plans to create 10,000 jobs in Europe over the next five years to work on its metaverse-related endeavors.

In the company’s earnings report, Mr. Zuckerberg reinforced that message. “I’m excited about our roadmap, especially around creators, commerce, and helping to build the metaverse,” he said.

Facebook said it expected to increase its investments in the coming years The company added that next year’s expenses would be as much as $97 billion on spending for items such as technical and product staff and infrastructure-related costs.

Write to Sarah E. Needleman at [email protected]