Thanks to a continuing rebound in online advertising, Facebook Inc. today reported better-than-expected fourth-quarter profit and revenue growth, but it warned that various challenges could hurt results in coming quarter.

The social networking giant, which also operates Instagram and WhatsApp, reported its fourth-quarter profit jumped 53%, to $11.22 billion, or $3.88 a share, on a 33% rise in revenue, to $28.07 billion. Zack’s average estimate was for a profit of $3.24 a share on revenue of $26.3 billion.

In other key metrics, the company also reported 1.84 billion daily active users, up 11% from a year ago, and 2.8 billion monthly active users, up 12%. Analysts had forecast daily active users at 1.83 billion and monthly active users at 2.76 billion.

“Facebook had a blow-out quarter, benefiting from the strong shift to online commerce during the pandemic, and from focusing more on advertising for products than services such as airlines,” said Martin Garner, chief operating officer at CCS Insight.

Still, investors weren’t jumping for joy. Facebook’s shares were falling nearly 2% in after-hours trading after an analyst conference call. The stock had fallen in the regular session, along with the rest of the market, by 3.5%, closing at $272.14. After topping $300 a share in September, shares have declined but have generally risen since mid-January.

Investors may have been cheered somewhat by announced plans to repurchase up to $25 billion in shares. That’s on top of a previously authorized buyback of up to $34 billion in stock, with $8.6 billion still left on that buyback.

“We had a strong end to the year as people and businesses continued to use our services during these challenging times,” Chief Executive Mark Zuckerberg (pictured) said in prepared remarks.

But Chief Financial Officer David Wehner had more bearish remarks in his prepared outlook.

“We continue to face significant uncertainty as we manage through a number of cross currents in 2021,” he said. Although he cited an ongoing shift toward online commerce and a shift in consumer demand toward products and away from services such as travel that provided a “tailwind” for its advertising business in the past six months, he said “a moderation or reversal in one or both of these trends could serve as a headwind to our advertising revenue growth.”

At the same time, Wehner noted, the company is “lapping a period of growth that was negatively impacted by reduced advertising demand during the early stages of the pandemic,” which will likely result in stable to modestly accelerating revenue growth in the first and second quarters of this year. But in the second half of the year, he added, “we will lap periods of increasingly strong growth, which will significantly pressure year-over-year growth rates.”

And that’s not all in terms of challenges. “We also expect to face more significant ad targeting headwinds in 2021,” he said. That will come from platform changes, especially Apple Inc.’s iOS 14, which could hit late in the first quarter, as well as “continuing uncertainty around the viability of transatlantic data transfers in light of recent European regulatory developments.”

Still, Facebook’s earnings results suggest once again that online advertising, the vast majority of its revenue, remains relatively healthy after advertisers cut spending early in the pandemic last year. “Facebook’s family of apps remains the place where brands invest,” Yuval Ben-Itzhak, president of social media marketing firm Socialbakers, told SiliconANGLE. “It’s still the most effective place to engage with customers and drive online sales, especially during a holiday season where most people shopped online.”

The continuing recovery in ads, which began last summer, could bode well for Google LLC parent Alphabet Inc. and even Amazon.com Inc., whose lucrative ad business is becoming significant. Both those companies report their fourth-quarter results on Feb. 2.

All of them face ongoing regulatory and political challenges on a number of fronts, from privacy to their sheer market power — all the more so now that there’s a Democratic U.S. administration seen as favoring more regulation of the internet giants. It’s facing controversy in particular over its decision to ban former President Donald Trump’s social media account.

And last month, a group of 48 attorneys general and the Federal Trade Commission filed separate lawsuits accusing the company of violating antitrust law by buying smaller tech companies in an alleged bid to keep competition at bay. The FTC in particular suggested potentially breaking up Facebook apps such as Instagram and WhatsApp.

That’s considered unlikely at this point. But Zuckerberg appeared unrepentant in defending its advertising and commerce based on use of user data. “Facebook continues with self-serving justifications for its industrial levels of data collection, arguing that personal data should be available to help small businesses,” said CCS Insights’ Garner.

Still, the company needs to do better on user trust, said Socialbakers’ Ben-Itzhak. “Facebook’s leaders should be focused just as much on building trust with its user base as with innovation,” he said.

Looking ahead, some analysts expect ad pricing to make a bigger impact on Facebook’s revenue growth. Since consumers are using both Facebook itself and Instagram to shop, not just happen to view ads, the company is moving “closer to the bottom of the marketing funnel, which in turn increases the value of its ad inventory” and its appeal to advertisers, the investment bank Credit Suisse wrote in a note to clients last week.

Indeed, said Ben-Itzhak, Facebook’s Live Shopping experience looks promising. “If Facebook can find a way to monetize this format further, it’s likely to herald a new era of online shopping – and spell more good news for its ad revenues,” he said.

Another small positive note: “Other revenue,” which includes its Oculus VR headsets and Portal video communication devices, rocketed 156%, to $885 million. In fact, Zuckerberg called Oculus Quest virtual and augmented reality devices, including upcoming AR smartglasses, the products he’s most excited about as the next generation of computing.

“The next logical step is this immersive computing platform,” he said. “This will unlock the types of social experiences that I’ve dreamed about since I was a kid.”

The company said it expects capital spending to reach $21 billion to $23 billion this year, driven largely by data centers, servers, networking infrastructure and offices. Some that increase will be from delayed construction in 2020, when Facebook reported $15.7 billion in capital spending.

Photo: Robert Hof/SiliconANGLE