*Includes a $3.0 billion legal expense accrued in the first quarter of 2019 related to the ongoing U.S. Federal Trade Commission (FTC) matter as discussed below. As this expense is not expected to be tax-deductible, it had no effect on our provision for income taxes. Excluding this expense, our operating margin would have been 20 percentage points higher, our effective tax rate would have been 14 percentage points lower and our diluted EPS would have been $1.04 higher.

Facebook Sets Aside $3 Billion to Cover Expected FTC Fine

April 24, 2019

Facebook Inc. set aside $3 billion for an expected fine from the Federal Trade Commission over privacy violations, cutting into the social-media giant’s profit even as its underlying business remained strong.

Facebook posted $15.08 billion in revenue, up 26% from $11.97 billion in the year-earlier period. Its profit dropped by more than half, to $2.43 billion in the first quarter, as the one-time reserve wiped out most of its income.

A multibillion-dollar penalty would likely be the largest ever against a major U.S. tech company by a U.S. regulator, and lands amid sharp debate on Capitol Hill about how best to hold Silicon Valley accountable for its abuses. It would also be the largest privacy-related fine in FTC history.

Facebook agreed in 2012 not to collect personal data and share it without user consent, as part of a settlement with the FTC. The agency began probing last year whether Facebook had violated the terms of that earlier settlement when data of tens of millions of its users were transferred to Cambridge Analytica, a data firm that did work for the 2016 campaign of President Trump. The Wall Street Journal reported in February that FTC staff had discussed a fine of up to $5 billion.

The FTC investigation has run for more than a year, prompting complaints from some lawmakers. Facebook’s statements on Wednesday suggest the case could be winding up, though the FTC has not given any deadline. While Facebook estimated a settlement would range between $3 billion and $5 billion, it cautioned “there can be no assurance as to the timing or the terms of any final outcome.”

Jessica Rich, a former head of the FTC’s consumer protection bureau, said that the legal reserve wasn’t necessarily proof that a settlement was forthcoming. But she credited “enormous consumer outrage” for the size of the fine Facebook anticipates paying, noting the largest privacy settlement the agency has ever reached was $100 million. “The pressure is on the FTC to show that they can take serious action when warranted,” she said.

The possible fine would be eminently manageable for Facebook. The company reported holding more than $42 billion in cash and marketable securities.

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Excluding the reserve for the FTC settlement, Facebook’s operating margin fell to 42%—a stellar number for virtually any business but nonetheless a step down from the 46% it reported a year earlier, as costs rose to $8.76 billion from $6.52 billion. Facebook has been warning that its margins will decline as a result of its increased investment in moderating user-generated content.

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Despite independent research suggesting that Facebook users are spending less time on the company’s main app, the company reported 1.56 billion daily active users globally, up 8% from 1.45 billion a year ago and continuing the company’s expansion streak. Average revenue per user also rose, to $6.42, up from $5.53 a year ago.

The company said around 2.7 billion people use Facebook, WhatsApp, Instagram, or Messenger each month.

Facebook reported nearly no user growth in the U.S., Canada and Europe, markets that produce about 70% of the company’s revenue but are approaching saturation. Its fastest-growing market was Asia, where users grew by nearly 4% over the first quarter.

The photo-sharing app Instagram stood out as a star of Facebook’s current results and the most likely candidate for strong growth in the near future. Instagram played a big role in rising revenue per user in the U.S. and Canada, with its Stories feature being the biggest driver of impression growth, according to Chief Financial Officer Dave Wehner. But ads within Stories ads remain significantly cheaper than Facebook’s other offerings, a gap that Mr. Wehner predicted would eventually narrow.

Mobile advertising revenue – Mobile advertising revenue represented approximately 93% of advertising revenue for the first quarter of 2019, up from approximately 91% of advertising revenue in the first quarter of 2018.

FTC Approves Roughly $5 Billion Facebook Settlement

July 12, 2019

The Federal Trade Commission voted this week to approve a roughly $5 billion settlement with Facebook Inc. over a long-running probe into the tech giant’s privacy missteps, according to people familiar with the matter.

The 3-2 vote by FTC commissioners broke along party lines, with the Republican majority lining up to support the pact while Democratic commissioners objected, the people said. The matter has been moved to the Justice Department’s civil division and it is unclear how long it will take to finalize, the person said. Justice Department reviews are part of the FTC’s procedure but typically don’t change the outcome of an FTC decision.

A settlement is expected to include other government restrictions on how Facebook treats user privacy. The additional terms of the settlement couldn’t immediately be learned.

An FTC spokeswoman declined to comment, as did a Facebook spokesman.

Facebook said April 24 that it was expecting to pay up to $5 billion to settle the probe. A resolution was bogged down by a split between Republicans and Democrats on the FTC, with the Democrats pushing for tougher oversight of the social-media giant.

The FTC investigation began more than a year ago after reports that personal data of tens of millions of Facebook users improperly wound up in the hands of Cambridge Analytica, a data firm that worked on President Trump’s 2016 campaign. The FTC investigation centered on whether that lapse violated the 2012 consent decree with the agency in which Facebook agreed to better protect user privacy.

Since the Cambridge Analytica affair, other privacy missteps have come to light, adding to Facebook’s headaches.

The settlement would easily exceed the previous record penalty for violating an FTC order, a $22.5 million fine against Google Inc. in 2012. The commission has limited powers to impose fines for first-time privacy violations but has broad latitude to sanction repeat offenders.

The party-line decision could expose Republicans to criticism by Democrats and diminish its impact for the FTC, which has sometimes been criticized for being toothless on privacy in the past. After Facebook set aside billions of dollars to pay the fine, some Democrats criticized the amount as too little.


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Facebook is also gearing up for potential scrutiny of its competitive practices. The Wall Street Journal reported last month that the Justice Department is gearing up for an antitrust probe of Alphabet Inc. ’s Google and has authority to look into Apple Inc. while the FTC has taken jurisdiction for possible antitrust probes of Facebook and Amazon.com .

Facebook is also preparing for congressional hearings next week related to its proposed cryptocurrency Libra, which has drawn skepticism from President Trump and many regulators.



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204.87 USD +3.64 (1.81%)
Closed: Jul 12, 4:31 PM EDT
After hours 205.00 +0.13 (0.063%)

• Earnings per share: $3.67 vs $3.84 expected, according to a Refinitiv survey of analysts
• Revenue: $33.67 billion vs $33.4 billion expected, according to Refinitiv

• Daily Active Users (DAUs): 1.93 billion vs 1.95 billion expected by analysts, according to StreetAccount
• Monthly Active Users (MAUs): 2.91 billion vs 2.95 billion expected by analysts, according to StreetAccount

The company, recently renamed to Meta, came in below expectations on daily and monthly active users as well as projections for the next quarter. Facebook said revenue in the first quarter will be $27 billion to $29 billion. Analysts were expecting revenue of $30.15 billion, according to Refinitiv.