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Facebook expects to be hit with a $5 billion FTC fine. Wall Street is thrilled

AP Photo/Noah Berger
Published This article is more than 2 years old.

The US government may not be over Facebook’s many scandals, but advertisers, users, and investors certainly don’t seem to mind.

In first-quarter earnings released today (April 24), Facebook noted an impact on its earnings from a one-time charge of $3 billion, a fine levied by the US Federal Trade Commission (FTC). The Washington Post reported in February that Facebook and the agency were negotiating the fees, which are related to recent privacy breaches and lapses at the company.

But not even the US government can stop Facebook from making boatloads of cash. The company generated over $15 billion in revenue in the first quarter, a jump of about 26% over the roughly $12 billion it posted in the same period last year. Analysts surveyed by Nasdaq had been expecting revenue of $14.97 billion. Even with the $3 billion Facebook is setting aside for the FTC, the company still managed to bring in nearly $2.5 billion in income. Without the fine, it would’ve easily topped the $4.98 billion it brought in in the same quarter last year.

Facebook also noted that its legal wrangling with the FTC is ongoing, and estimates its fines could be as high as $5 billion. Even at $3 billion, it’s the largest fine ever levied against a tech company by the FTC.

Investors were thrilled. The company’s stock price was up roughly 9% from its closing price in after-hours trading to around $199.07 at the time of publishing.

Facebook now has 2.38 billion monthly active users, an increase of 8% year-over-year; its user base accounts for 55% of the world’s internet population. The company estimates that more than 2.1 billion people now use its “family” of services—Facebook, Instagram, WhatsApp, or Facebook Messenger—every day.

That being said, Facebook’s daily user count in the US and Canada, its most lucrative market, has stagnated at 186 million users, up just 1 million from the same period in 2018. Those users generated $30.12 on average for Facebook in the quarter, a nearly 28% increase from $23.59 in the same quarter a year ago.

In March, CEO Mark Zuckerberg announced a new vision for Facebook, shifting its raison d’être from a “town square” to a privacy-focused “living room” and emphasizing increased integration and end-to-end encryption for Facebook’s messaging services. One of the open questions about that shift is how it will affect the company’s business model, which relies on open access to user data.

That business model already faces two major threats: user backlash and governmental regulation. And after a terrible few years for its public image, 2019 has thus far only proven that Facebook’s troubles are far from over. Lawsuits and reporting revealed that the company compromised millions of user passwords, made money off of children’s gaming habits, and paid teenagers to siphon up their data through a separate app. Facebook also faced intense criticism over allowing the livestream of the Christchurch mosque attacks to spread on its platforms.

“Advertisers continue to be stuck on Facebook, despite its many challenges,” eMarketer principal analyst Debra Aho Williamson told Quartz over email. “What they care most about is its vast user base and its targeting capabilities, and both are continuing to provide strong performance for them. And while marketers may say privately that they do worry about Facebook’s problems with fake news, election meddling, privacy and more, they worry more about their own financial health, and Facebook is still a major partner in that regard.”

And there are still places for Facebook to push more ads. Insiders and analysts see the Stories format as a potential cash cow, and ads there are currently cheaper and under-utilized compared to those on main feeds.

“Our conversations with marketing partners suggest that time spent within Instagram Stories is approaching that of Instagram’s core feed, and brand campaigns in Stories are proving popular with advertisers, which bodes well for pricing convergence with the Newsfeed,” Baird analyst Sebastian Colin wrote in a research note. Baird sees Messenger as a similar opportunity, and is also watching e-commerce, which Facebook is starting to roll out on Instagram.

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