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Facebook shrugs off $5bn fine, reports strong quarter

Investors responded positively after social networking firm reported better-than-expected second-quarter results after budgeting for FTC fine, but the company faces a further antitrust investigation

Facebook has reported second-quarter revenues of $16.9bn and a profit of $2.6bn despite controversy and fines related to its privacy and business practices.

The financial report followed news that the company had agreed a $5bn settlement with the Federal Trade Commission (FTC) for violating consumers’ privacy rights, which was exposed in the data-sharing scandal with Cambridge Analytica affecting 87 million users, including nearly 1.1 million Britons.

Facebook has also been hit with a separate fine of $100m by the US Securities and Exchange Commission (SEC) for failing to disclose the risks of its privacy practices to investors.

According to the financial report, the company recorded a “legal expense” of only $2bn in the quarter tied to the FTC settlement because it had previously set aside $3bn.

Revenues came in nearly 3% above estimates and represented a 24% increase on the same period a year ago, but profit for the quarter was down 49% because of a 66% increase in costs and expenses.

Mobile advertising revenue is widely considered an important indicator for businesses like Facebook, which reported that in the second quarter, mobile advertising revenue represented about 94% of its advertising revenue, up from about 91% of advertising revenue in the second quarter of 2018.

“We had a strong quarter and our business and community continue to grow,” said Mark Zuckerberg, Facebook founder and CEO. “We are investing in building stronger privacy protections for everyone and on delivering new experiences for the people who use our services.”

Although he escaped personal liability in terms of the FTC settlement agreement, Zuckerberg will be personally responsible for the company’s data protection practices, having to report to the FTC every three months to prove that user data is being safeguarded adequately.

“We have agreed to implement a comprehensive expansion of our privacy programme, including substantial management and board of directors oversight, stringent operational requirements and reporting obligations, and a process to regularly certify our compliance with the privacy programme to the FTC,” the earnings report said.

In a call with analysts about the report, Zuckerberg said Facebook believes there needs to be a regulatory framework in place.

“My broader concern is that if that doesn’t get put in place, then frustration with the industry, I think, will continue to grow,” he said. “And so we’re trying to do our part to help advocate for a good regulatory framework in each area, and they will come in different forms.

“So, in some places, there will be laws passed and others might be working with regulators and having some structural rules imposed on us like with the FTC settlement; in other areas, it might be self-regulation like around, content and speech in the United States.”

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Despite the negative publicity in recent months, Facebook reported 1.59 billion daily active users for June, an increase of 8% compared with a year ago, and 2.41 billion monthly active users, also up 8%.

“We estimate that more than 2.1 billion people now use Facebook, Instagram, WhatsApp or Messenger – our “family” of services – every day on average, and more than 2.7 billion people use at least one of our family of services each month,” the earnings report said.

However, the report also indicated that Facbook may face further action from the FTC. “The online technology industry and our company have received increased regulatory scrutiny in the past quarter,” it said.

“In June 2019, we were informed by the FTC that it had opened an antitrust investigation of our company. In addition, in July 2019, the Department of Justice announced that it will begin an antitrust review of market-leading online platforms.”

Investors responded positively to the strong quarterly figures, however, and Facebook stock was up about 3% in after-hours trading.

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