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April 25, 2019

Facebook Earnings: Strong Growth, But a $3-$5 Billion FTC Fine Awaits

“We anticipate GDPR-type regulation across the globe, that is a particularly important headwind to watch.”

By CBR Staff Writer

Facebook is preparing to be hit by the US Federal Trade Commission’s (FTC)’s largest penalty for a privacy breach yet, with the social media giant estimating the “loss in this matter” between $3 billion and $5 billion.

In the company’s first earnings report of 2019, Facebook said it has earmarked $3 billion as a “legal expense” to cover the future costs of a settlement they are negotiating with the FTC. The FTC conducted an investigation into Facebook’s user data practices in the aftermath of the Cambridge Analytical scandal.

The company’s CFO Dave Wehner clarified in an earnings call that they are actively negotiating with the FTC, so the matter is in no way resolved.

As he put it: “The actual amount of payment remains uncertain… [We] can’t really comment further as this is an ongoing matter. We booked at the low end of the range in accordance with the applicable accounting guidance.”

The largest fine handed out by the FTC on a similar data privacy lapse was to Google in 2012, which was fined £17.4 million.

Facebook Earnings Growth Was Strong Overall

Aside from that Facebook has posted a strong first quarter result with total sales in the first three months of the year rising by 26 percent to $15 billion (£11.6 billion).

The company’s advertising revenue for Q1 is $14.9 billion (£11.6 billion) which also represents a 26 percent year-on-year rise.

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Ad growth was the strongest in North America which saw a 30 percent growth, while Europe grew slower at 21 percent. Once again the Asia-Pacific is a rapidly growing market for Facebook as that region experience growth of 28 percent.

CEO Mark Zuckerberg commented that: “This was a strong quarter, and our community and business continue to grow. There are now around 2.7 billion people using Facebook, Instagram, WhatsApp or Messenger each month, and more than 2.1 billion people are using at least one every day.”

Facebook Earnings

Image Source: Facebook

Elections and Regulations

Both Mark Zuckerberg and COO Sheryl Sandberg addressed the issue of elections and the platform’s transparency in how they operate with regards to US elections, they also highlighted the upcoming European Parliament elections.

Sandberg discussed how they have focussed on addressing known threats and are in the process of building more robust defenses to help them deal with and anticipate new threats.

One way they have sought to address user engagement with political content on the site is to expand their advert Library to include all advertisements, not just electoral adverts. The advert library is a search database of all the active adverts currently running on Facebook’s platforms.

Sandberg commented in an earnings call that: “Ahead of the European Parliament elections next month, anyone running political or issue ads in the EU is required to confirm their identity and location and include a “paid for by” disclosure. Making online ads more transparent helps people understand who’s trying to influence their vote – and helps us better defend against foreign interference.”

Facebook Earnings

Image Source: Faebook

Zuckerberg detailed how there has always been laws that define what political advertising is, but that we have entered into a new era where the terms of engagement have changed and there is a need to update the current regulations to take this into account: “Today’s threats like the ways that foreign nation states try to interfere in elections now. Those threats are often not covered by today’s laws and I think we’d be better off if companies didn’t define those policies themselves.”

When it comes to privacy regulation the social media giant has come out in favour of regulations such as GDPR which Europe implemented in 2018. Zuckerberg believes that it would be ‘positive’ if more countries were to adopt regulations like GDPR as a common framework.

Zuckerberg said that: “Realistically, most countries will adopt privacy regulation, and the most likely alternative to a global framework like GDPR is the fragmentation of the internet — and more countries following the approach of authoritarian regimes adopting strict data localization policies where governments can more easily access people’s data, and I’m highly concerned about that future.”

The company is keeping a close eye on these incoming regulations as Dave Wehner states to investors: “We anticipate GDPR-type regulation across the globe, that is a particularly important headwind to watch.”

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