Julia Carrie Wong in San Francisco 

Facebook revenues soar despite $5.1bn in fines and new antitrust investigation

Company says US regulators have launched an antitrust investigation into platform
  
  

zuckerberg
Facebook reported $16.9bn in revenues in the second quarter. Photograph: Charles Platiau/AP

Two giant fines by US government agencies totaling $5.1bn could not derail Facebook’s financial juggernaut on Wednesday, as the company reported revenues of $16.9bn in the second quarter of 2019, exceeding analyst expectations.

The social media company’s regulatory concerns are by no means over, however. Facebook also disclosed on Wednesday that the FTC informed it in June that it has opened an antitrust investigation into the company. This follows the Department of Justice’s announcement of a broad antitrust review of online platforms on Tuesday.

The one-time costs of the two settlements depressed Facebook’s profits for the second quarter in a row – the company recorded a $3bn expense last quarter in anticipation of a major fine – but revenue growth remained strong, at 28% year-over-year.

Facebook also saw continued strength in its key usage metrics, with 1.59bn daily active users and 2.41bn monthly active users, with both metrics seeing 8% growth year-over-year.

Shares initially jumped in after-hours trading, capping off a day that saw the market reward Facebook for resolving the two outstanding investigations with a 1.14% gain.

The earnings report came on a momentous day for the 15-year-old social media company as it settled investigations by the Federal Trade Commission (FTC) and Securities and Exchange Commission (SEC), both stemming from the Cambridge Analytica revelations that were first reported by the Observer.

The FTC had investigated whether the data practices uncovered in that reporting violated a 2012 order barring Facebook from deceiving users about its privacy practices. The FTC’s inquiry found repeated violations of that order, in addition to “a new set of deceptive practices” related to data collection.

Facebook agreed to pay $5bn and adopt new corporate procedures governing privacy, but did not admit wrongdoing.

On a conference call with investors, the chief executive, Mark Zuckerberg, warned that the strictures of the settlement will “require significant investment” and slow the pace of product development. Zuckerberg said he was pleased that the settlements had provided the company with a “clearer path forward”, but did not address the newly disclosed antitrust investigation.

Zuckerberg also reiterated his desire for government regulation of the internet. “Either the right regulations will get put into place or we expect frustration with our industry will increase,” he said.

The chief financial officer, David Wehner, cautioned that he expects revenue growth to decelerate in the second half of 2019 due to “ad targeting headwinds”. He identified three primary impediments to Facebook’s ability to profit from ad targeting: privacy regulations such as Europe’s General Data Protection Regulation; changes by operating systems to restrict ad targeting and data collection; and Facebook’s own product plans, which include a shift toward encrypted communications that will reduce the company’s ability to surveil users.

The FTC fine is one of the largest in US regulatory history, and by far the largest ever levied by the FTC over a privacy violation. It amounts to approximately one month of revenues for the company. Two of the FTC’s five commissioners, both Democrats, lambasted the settlement as insufficient.

The SEC alleged that Facebook violated securities laws when it failed to disclose Cambridge Analytica’s unauthorized acquisition of user data to investors in 2015, when it first learned of the matter. Facebook agreed to pay a $100m fine to settle the SEC’s complaint; as with the FTC case, it will not admit or deny the charges.

“Advertisers remain dedicated to Facebook despite its problems,” said Debra Aho Williamson, a Facebook analyst for eMarketer. “Today’s FTC settlement doesn’t appear to have direct impact on Facebook’s business, but there is no reason to think that other regulatory or governmental investigations won’t have an impact in the future.”

 

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