Privacy fine set-aside dents Facebook’s profit

PARIS FRANCE- MAY 24 Mark Zuckerberg chief executive officer and founder of Facebook Inc. attends the Viva Tech start-up and technology gathering at Parc des Expositions Porte de Versailles

Absent this one-time expense, the company noted, Facebook's earnings per share would have beaten analyst expectations, and its operating margin (22%) would have been 20 points higher. The Redmond, Washington-based company said it had profit of $1.14 per share, beating the $1 per share anticipated by analysts.

Facebook could pay as much as $5 billion to settle an investigation by the American consumer watchdog into alleged violations of its users' privacy.

It would be the biggest-ever fine levied by the Federal Trade Commission (FTC) against a technology company. Following events such as the Cambridge Analytica scandal and a security flaw which was discovered late a year ago, one would assume Facebook would be losing users.

Investors have generally shrugged off issues surrounding data use, regulatory hurdles or political pressure when evaluating Facebook, focusing instead on its robust financials.

There's no way of saying for sure, of course, until the FTC makes a formal announcement of the fine and the terms later this year. Net income for the quarter without the $3 billion charge was $5.43 billion, compared to almost $5 billion a year ago.

The shares are up by almost 40% in the year to date, far outperforming the broader market, and were up almost 5% in late trading on Wall Street. Although Facebook's user growth in geographical regions like the U.S., Canada and Europe have more or less plateaued, it reported significantly large gains in Asia-Pacific and elsewhere, indicating there is still potential for adding new users in several untapped markets.

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The number of people who checked Facebook monthly also grew by 8%, reaching 2.38bn. The FTC began its investigation in the wake of the Cambridge Analytica scandal disclosed in early 2018 over alleged Facebook violations of a 2011 consent decree on user privacy.

Prior to that, the company came under fire for its response to one of the shooters in a Christchurch, New Zealand mosque massacre live streaming the attack in March.

That plan - to stitch together the various messaging platforms in Facebook's "family of apps" - was announced in March as a pivot to a "privacy-focused communications platform".

Facebook needs to show that it's improving on user data practices and content management, said Jessica Liu, a marketing analyst for Forrester.

On the call Wednesday, Zuckerberg reiterated that Facebook is focused on building a platform centered around privacy, which he said would alleviate users' fears around privacy or their posts coming back to hurt them later.

"There needs to continue to be both the digital town square and and the digital living room", Zuckerberg said.

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