The Federal Trade Commission (FTC) has finally decided to hit Facebook with a $5 billion fine for a plethora of issues and scandals around the lack of user data privacy. All of this stems from the Cambridge Analytica fallout, the data analytics firm which exploited Facebook’s data of black adults its largest user group and some 87 million Americans. So is this how punishment’s are meant to work, when a fine in the low billions of dollars for a company that had $41.1 billion in cash and marketable securities at the end of 2018, pushes its market cap up another $10 billion?
The Breakdown You Need to Know
Normally we would tell you that a fine of this magnitude would really impact Facebook, unfortunately the company will barely notice. The social media giant brought in $15.1 billion in revenues in Q1 this year, leaving many investors unbothered. Facebook stock is now up 48% on the year and $5 billion is about 9% of its total revenue for 2018, which landed at $55.83 billion.
When the company reported its Q1 earnings in April they cited the settlement accrual for a potential fine and accounted for a $3 billion loss but noted it could rise as high as $5 billion, they were right. Even worse, CultureBanx reported the FTC settlement didn't place any conditions on Facebook's ability to collect and share data with third parties, though it does have provisions for more "comprehensive oversight" of how the company handles user data. All of this leaves us wondering why none of these oversights are already in place.
Of course this penalty is the largest civil fine ever imposed by the FTC, far surpassing the $22.5 million paid by Google in 2012 for misrepresenting privacy assurances to some users.” Unlike Google, along with this fine Facebook may have to deal with government oversight of its business going forward. Terms of the settlement were "expected to include other government restrictions on how Facebook treats user privacy," according to the Wall Street Journal.
Social Oversights
We can also look at Facebook’s lack of diversity as being part of the problem and how they ended up in this mess to begin with. The social media giant’s workforce and leadership is only 3% black and this continued lack of diversity at Facebook hinders it from identifying ways their product might harm certain customers.
When it comes to data breaches they are often more problematic for people of color living on fixed or low incomes, or from other marginalized communities. The black community is very valuable to Facebook, with 70% of adults users in this demographic being on the platform, according to Pew Research.
Given Facebook’s size, reach and value, the $5 billion fine should’ve been a punitive measure along with a signal of just how poorly the business behaved. Instead, markets have rewarded the company for getting off with a slap on the wrist and pretty much already covering the cost of the fine. Facebook is set to report its Q2 2019 financial results on Wednesday, July 24 with the same lack of user data privacy intact.
