Revenue manages to grow but rate of increase declines and is expected to stay low 


By Jeff Horwitz

Facebook Inc. powered through the throes of the pandemic, as the social-media giant's revenue rose in the second quarter thanks to increased engagement from users.

The company, nonetheless, posted a significant decline in its revenue growth rate and warned that growth will remain muted amid continued economic fallout from the pandemic, an advertiser boycott and reduced efficacy of ad targeting.

(Amazon, Apple and Google also reported earnings on Thursday. Follow our coverage for results and analysis.)

Facebook generated $18.7 billion in revenue, up from $16.9 billion a year earlier and above analysts' expectations of $17.34 billion, according to data from FactSet. The 11% growth is a deceleration from the average gain of nearly 25% for the preceding four quarters.

Profit for the second quarter nearly doubled to $5.18 billion, or $1.80 a share, exceeding Wall Street estimates. Facebook shares gained more than 6% in after-hours trading.

The results once again show the resilience of Facebook's business even as it is buffeted by one controversy after another. Chief Executive Mark Zuckerberg was one of four major tech CEOs to testify before Congress on Wednesday about whether their companies have accumulated too much power.

Mr. Zuckerberg used the company's earnings call Thursday to make a different case: that Facebook is a vital social good and that overly broad regulatory efforts to hobble it would be counterproductive. Increased usage of its products in recent months shows the platform is helping society weather the pandemic, he said, adding that he believes the U.S. government's response to the pandemic has fallen short.

Mr. Zuckerberg said efforts to significantly restrict how Facebook collects and deploys data about its users could be harmful, calling the company's personalized advertising a lifeline for small businesses struggling to survive social-distancing mandates. If ad targeting were significantly restricted, he said, "this would reduce opportunity for small businesses so much that it would probably be felt at a macroeconomic level. Is that really what policy makers want?"

The recent quarter was the first to reflect the full weight of the coronavirus pandemic in the U.S. -- which upended normal economic activity but fueled usage of Facebook's products. Average monthly users of the Facebook platform rose to 2.7 billion, from 2.6 billion in the first quarter. More than three billion people now use at least one of Facebook's products on a monthly basis.

Facebook had joined other social-media companies in predicting that pandemic fallout would damp its near-term prospects. On Thursday, it said that in the first weeks of the current quarter revenue grew at a 10% clip year over year, a rate it predicted would hold through September.

Facebook, which traditionally hasn't offered such guidance, said the forecast reflected uncertainty about the economy, the current ad boycott and limitations on Facebook's ad-targeting business applied by California's data privacy law as of the start of this month.

The ad boycott, which was rooted in frustrations from civil-rights groups about how Facebook handles hate speech, began in July and thus didn't affect second-quarter results. The monthlong boycott is scheduled to end Friday though some advertisers may continue to limit spending on Facebook's platforms.

While Facebook cited the boycott as a likely contributor to lower revenue growth in the third quarter, both Mr. Zuckerberg and Chief Operating Officer Sheryl Sandberg played down its impact on the company's actions. Facebook would continue engaging with civil-rights groups and working to combat hate speech "not because of pressure from advertisers, but because it is the right thing to do," Ms. Sandberg said.

Facebook's nonadvertising business, which includes virtual-reality division Oculus, as well as Portal, its home video calling device, was an exception to the slower growth, with sales rising 40% from a year earlier. Advertising still accounts for 98% of Facebook's revenue.

The company's 32% gross margin for the period compared with 31% for the first quarter and 27% in last year's second quarter. Mr. Zuckerberg had predicted that the margin would drop throughout 2020 as the company used its financial strength to invest in new products and employees.

Over the past few months, the company has rushed to release new products in major markets, including a customizable shopping feature aimed at small business, a video chat product called Rooms and Instagram Reels, which copies many of the features popularized by rival social-media platform TikTok.

Mr. Zuckerberg has said that he expects the pandemic will alter consumer behavior long term in ways that will benefit Facebook as people spend more of their lives online.

Write to Jeff Horwitz at Jeff.Horwitz@wsj.com