Facebook’s Revenue, Earnings Growth Slows

*Zuckerberg: Facebook Watch is growing quickly, but “we’re well behind YouTube”

*Zuckerberg says Apple’s iMessage has advantage in messaging because it is bundled with iPhones

*Zuckerberg: In messaging “our biggest competitor by far is iMessage”

*Zuckerberg says markets that allow more competition between iOS and Android, including Europe, users prefer Facebook services such as Messenger and WhatsApp

*Zuckerberg: Facebook has “at least a year” before platform’s system are able to prevent abuse “at the level we want”

*Zuckerberg: “I expect 2019 to be another year of significant investment”

*Zuckerberg: “I know we need our costs and revenue to be better matched over time”

(more to come)

Facebook Inc. recorded lower revenue than expected as the social-media giant continues to adjust to slowing growth rates.

Facebook’s profits, however, were higher than analysts had expected. Following the results, the company’s stock price was active, recently sliding 1.6% to $143.89 in after-hours trading.

For the third quarter, Facebook reported per-share earnings of $1.76, up from $1.59 a year earlier and beating analyst projections of $1.46, according to data compiled by FactSet. Facebook’s net income rose to $5.13 billion from $4.71 billion a year ago. The 9% increase in profit was the slowest growth rate in quarterly profit since the second quarter of 2015, according to FactSet.

Revenue leapt 33% to $13.73 billion, falling slightly short of expectations of $13.77 billion. The percentage increase was the lowest in six years, FactSet said.

The company’s stock initially fell more than 5% after the results before rebounding—a more positive reaction from investors than in the previous quarter. When the company in July warned of slowing growth with its second-quarter earnings, Facebook shares suffered the biggest-ever one-day loss for a U.S.-listed company, lopping off nearly $120 billion from its market value.

Before Tuesday’s earnings report, Facebook shares had fallen about 20% year to date and about 34% since its last earnings report in late July. The decline in share price is part of a larger pattern of investors fleeing giant tech companies like Google parent Alphabet Inc. and Amazon.com Inc., which posted underwhelming sales growth last week.

Ahead of the latest quarterly results, many investors were concerned that Facebook would fall short of even lowered expectations given the company’s dismal second-quarter showing and the growing risk of increased regulatory oversight in the U.S. and Europe. SunTrust Robinson Humphrey analyst Youssef Squali said he was “relieved” by Tuesday’s report.

“A year ago, when everything was going great, we assumed everything was going to be great for an extended period of time,” said Mr. Squali, who has a “buy” rating on Facebook shares. “Now we’ve adjusted a little—we have the fear of God in us.”

About 1.5 billion people use Facebook every day and 2.3 billion use it monthly. The company estimated that more than 2.6 billion people now use Facebook, WhatsApp, Instagram or Messenger every month, and more than two billion people use one of its apps every day. Those figures were roughly in line with expectations.

Facebook’s largest sources of user growth are in developing markets, especially in Asia, where it generates about $2.67 per user. Facebook’s user base didn’t grow much in its most lucrative markets, which are the U.S., Canada and Europe. Facebook earns $27.61 for every user it has in the U.S. and Canada and $8.82 for its European user base.

Many investors are bracing for Facebook shares to swing wildly over the next few days, according to data released before the earnings report. Options prices forecast a swing of 9.3% in Facebook shares, much larger than the average move of 5.5%.

This year marks perhaps the most difficult period in Facebook’s nearly 15-year history. Critics have attacked the company’s lax data privacy practices, following Facebook’s disclosure that it provided user records to a third party, which then sold the information to political analytics firm Cambridge Analytica. Facebook also has been criticized for its failure to enforce its content policies and allowing misinformation to infect its various apps.

Facebook has said it previously moved too slowly to fix problems underlying its platform and promised to fix these issues.

These problems have brought regulatory and government scrutiny, and they’ve cut into Facebook’s bottom line, as the company has said it expects costs to rise and margins to fall in coming years. Those shifts reflect Chief Executive Mark Zuckerberg’s promise to sacrifice profitability in order to shore up the platform, stockpile video content and invest in advanced technologies like artificial intelligence.

Facebook also is bracing for slower growth in its advertising business, which collects the bulk of its revenue from ads that appear in the Facebook news feed. Facebook warned that growth would slow in the second half of the year, triggering a 35% decline in its stock price since late July. The falling share price has started to hit morale internally at Facebook, which has been buffeted by two years of nearly relentless criticism about its product and culture, according to current and former employees.

In the run-up to Tuesday’s results, some advertisers said it wasn’t sustainable for prices to rise on news feed ads, especially as more users embrace the Stories feature, which allows people to post text, photo and video montages that vanish within 24 hours. According to Credit Suisse, ads in Facebook Stories may cost about half of those in the main news feed.

Facebook’s turmoil has hit its executive ranks, where at least a dozen senior or highly visible executives have left or announced their departures since the fall of 2017.

Write to Deepa Seetharaman at [email protected]