Facebook Expects Potential $5 Billion in FTC Fines, Stock Still Soars 5 Percent on Q1 User Growth

Sean Burch
Facebook shrugged off increased scrutiny from Washington, D.C. on Wednesday, with the social network reporting it continued to attract more users — and pull in more ad revenue — during the second quarter of the year. At the same time, the company revealed it’s facing a new antitrust investigation from the Federal Trade Commission.Facebook’s user base swelled to 1.59 billion daily users during Q2, an increase of 8% year-over-year. It also reported 2.4 billion monthly users, matching analyst estimates.The company posted revenue of $16.9 billion, a 28% year-over-year increase that surpassed Wall Street projections of $16.5 billion. Facebook reported earnings per share of $1.99, excluding a one-time $2 billion charge related to its recent settlement with the FTC, topping analyst estimates of $1.87 EPS. The company had set aside $3 billion last quarter as part of its FTC settlement.Also Read: Facebook Hit With Record $5 Billion FTC Fine Over Data BreachesEarlier in the day, Facebook agreed to a record-setting $5 billion settlement with the Federal Trade Commission over its mishandling of user data. The FTC’s privacy investigation opened last year, after it came to light 87 million Facebook users had their profile information unwittingly accessed by Cambridge Analytica, a political consulting firm.Despite the deal, Facebook still appears to be in the commission’s crosshairs.  In its letter to shareholders on Wednesday, Facebook said it was informed by the FTC last month that it had opened an antitrust investigation into the company.Wall Street didn’t seem to mind the latest investigation, at least at first blush, with Facebook shares increasing about 3.5% in early after-hours trading to $211 per share — putting the company within reach of its all-time high of $217 per share.“We had a strong quarter and our business and community continue to grow,” Facebook chief Mark Zuckerberg said in a statement.  “We are investing in building stronger privacy protections for everyone and on delivering new experiences for the people who use our services.”Also Read: Instagram Goes Down for the Third Time in Just Over a MonthFacebook estimated 2.1 billion people use one of the apps in its network — Facebook, Messenger, WhatsApp and Instagram — at least once per day.Average revenue per user of $7.05 increased 18% year-over-year during the quarter, indicating the company is squeezing more dollars out of its user base.As part of its $5 billion settlement with the FTC, Facebook will be hit with “unprecedented new restrictions” on its business operations, according to the FTC, including establishing “strong new mechanisms to ensure that Facebook executives are accountable for the decisions they make about privacy, and that those decisions are subject to meaningful oversight.”Facebook will also create a privacy oversight committee created with independent members. The members can only be fired by a supermajority of Facebook’s board, not by CEO Mark Zuckerberg alone. Zuckerberg and other newly appointed compliance officers must also submit to quarterly FTC check-ins. Any false information shared could open Facebook up to additional fines and penalties, according to the FTC.Also Read: How Facebook and Twitter's Content Moderation Could Open a Legal 'Pandora's Box'The settlement came a day after the Justice Department announced it was looking into anti-competitive practices in Silicon Valley — potentially putting Facebook and other tech giants like Amazon and Alphabet under increased regulatory pressure.Still, there were signs that, heading into Wednesday, most Facebook users don’t care about the company’s privacy issues. Engagement on Facebook nearly doubled during the first half of 2019 when compared with the same time period last year, according to data shared by Newswhip, a social media tracking firm. Site visits to Facebook had also increased about 30% during the first two quarters of the year, according to a recent survey shared by marketing agency Merkle.Facebook will hold a call to discuss its earnings at 2:00 p.m. PST.Read original story Facebook Stock Pushes Towards All-Time High Despite New FTC Antitrust Investigation At TheWrap

Facebook is still growing — despite spending big money on regulatory inquiries into its privacy practices.  The social network reported it added another 50 million monthly users — putting it on the verge of passing 2.4 billion users overall — while posting better-than-anticipated sales when it reported its first quarter financials on Wednesday afternoon.

This comes despite Facebook estimating it set aside $3 billion during the quarter to settle an ongoing Federal Trade Commission investigation into its handling of user data. That one-time charge could surge to $5 billion, the company said in its earnings release.

“In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion in connection with the inquiry of the FTC into our platform and user data practices, which accrual is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet,” Facebook said in its release. “We estimate that the range of loss in this matter is $3.0 billion to $5.0 billion. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.”

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The fine would be the biggest in FTC history. The FTC is investigating whether Facebook violated a 2011 agreement on protecting user privacy.

For the three months ended March 31, Facebook pulled in $15.1 billion in Q1 revenue, surpassing Wall Street estimates of $15 billion in sales. The company also posted non-GAAP earnings per share of $1.89, compared to analyst estimates of $1.63. Facebook’s sales increased 26% year-over-year, its smallest rate of growth since going public in 2012.

Facebook reported both its monthly active user base and its daily active user base increased 8% year-over-year. The company now has 2.38 billion MAUs and 1.56 billion DAUs. Facebook said 2.7 billion people access its family of apps, including Instagram, Messenger and WhatsApp, each month.

The user growth appeared to trump any investor concerns over its heavy legal spending, at least at first blush. Facebook shares jumped 5% in after-hours trading, hitting $191.20 per share.

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“We had a good quarter and our business and community continue to grow,” chief Mark Zuckerberg said in a statement accompanying earnings. “We are focused on building out our privacy-focused vision for the future of social networking, and working collaboratively to address important issues around the internet.”

Net income for the quarter was $5.43 billion, not factoring in the company’s legal charge.

Heading into Wednesday, Facebook’s business had remained teflon, despite a myriad of data privacy issues that have hit the company in the last year. Facebook’s stock price had increased more than 30 percent since the beginning of the year, closing at about $182 per share before releasing its Q1 results. What spurred the stock market rebound? Facebook reported in January it closed 2018 with a company-best $16.9 billion in quarterly revenue and still found a way to increase its daily user base 9%, surpassing the 1.5 billion daily user threshold at the same time. After a year full of privacy issues — underscored by the Cambridge Analytica data leak, which the company later admitted impacted 87 million users — the health of Facebook’s business, and the fact it avoided a user exodus, looked like a good omen for shareholders.

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Still, Facebook has been unable to shake its privacy woes in 2019. In March, the company said hundreds of millions of user passwords had been stored in plain text — leaving them exposed to thousands of Facebook employees. Facebook VP Pedro Canahuati later said the company found “no evidence” the passwords were inappropriately accessed by company employees. And just last week, Business Insider reported Facebook harvested the email contacts of 1.5 million users without consent.

Last month, Zuckerberg outlined a company-altering plan to “build a simpler platform that’s based on privacy first.” In a lengthy blog post, Zuckerberg said that the strategic shift will include end-to-end encrypted messaging across all of Facebook’s platforms, barring Facebook and law enforcement from being able to read private conversations. Facebook-owned WhatsApp already has encrypted messaging, and it’s available as an opt-in feature on Messenger.

The revamped privacy approach will also emphasize ephemeral messaging, which was made popular by Snapchat. Facebook is also pledging to abandon storing user data in countries that have “weak records on human rights like privacy and freedom of expression.” Zuckerberg said this could lead to issues in countries like Russia, where lawmakers have attempted to force the social network to keep user data on servers located in the country. So far, Facebook has been quiet on how much Zuckerberg’s privacy mandate will cost the company or how it will affect its business.

The company will hold a call to discuss its earnings at 5:00 p.m. ET.

Read original story Facebook Expects Potential $5 Billion in FTC Fines, Stock Still Soars 5 Percent on Q1 User Growth At TheWrap