Facebook shares continue to rise despite a record-setting $5 billion fine issued against the social ... [+]
Facebook proved again its advertising engine can weather public backlash, reporting a surge in sales on the back of increased engagement and users, who now top 2.4 billion.
The Menlo Park, California-based company [FB] reported $16.9 billion in revenue for the second quarter, up 28% year-over-year, beating revenue forecasts of $16.5 billion compiled by Refinitiv. The company also reported profit fell 49% to $2.6 billion, hit by a $5 billion settlement with the Federal Trade Commission as the result of a yearlong investigation prompted by the 2018 Cambridge Analytica scandal. The company said it recorded a $2 billion charge related to legal costs this quarter as a result. Excluding that and an additional $1.1 billion income tax expense, earnings per share would have been $1.99 per share, beating analyst expectations of $1.88 per share.
Facebook shares rose more than 1% after hours, extending a 50% rise year-to-date as investors have looked beyond the expected regulatory penalty to continued user and sales growth. But data-privacy and antitrust legislation loom large for Facebook and could affect how the company collects and ultimately monetizes personal information of its users.
It acknowledged at least some of this regulatory activity in the earnings report. Buried in the footnotes of the earnings release was a two-line admission that Facebook is now the target of two separate antitrust probes: “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.”
Facebook executives have responded to a storm of inquiries from U.S. regulators through most of this year. In addition to today’s resolution of a 16-month FTC investigation, Facebook’s cryptocurrency chief David Marcus appeared in front of House and Senate committees last week to answer questions about the company’s digital currency Libra.
Still, users—and advertisers — keep coming. It reported 1.59 billion daily active users on average for June, an increase of 8% year-over-year. Facebook’s monthly active users also increased by 8% year-over-year.
On the earnings call, CFO David Wehner said he expects revenue to slow heading into 2020 as the company deals with various regulatory headwinds and product changes. Zuckerberg on the same call took a much longer view on the obstacles ahead, saying that it was important to let all of the company’s products “mature.”
“After helping people connect with friends and family, helping people connect with communities is the next most important social problem that we believe we can help address [on Facebook], and that’s just going to be an area of increasing value in the product,” said Zuckerberg.
Not everyone expects regulation to have a significant impact on business, though. Democratic FTC commissioner Rohit Chopra said in his dissenting statement against the $5 billion order: “The settlement imposes no meaningful changes to the company’s structure or financial incentives, which led to these violations. Nor does it include any restrictions on the company’s mass surveillance or advertising tactics.”
