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Facebook investors shrug off $5B fine, as critics blast FTC

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FOX Business

Facebook appears unaffected by negative healines


CFRA Research senior equity analyst John Freeman on the outlook for Facebook.

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'Facebook investors shrug off $5B fine, as critics blast FTC'''

By Megan HenneyPublished July 25, 2019''


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agreed to pay a record $5 billion fine for privacy

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violations and faces an impending antitrust investigation by U.S. regulators, but shares climbed in premarket trading on Thursday, allayed by better-than-expected earnings.

The social media behemoth revealed in its quarterly earnings report

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that both the Federal Trade Commission and the Justice Department have opened antitrust investigations into its practices, separate from Facebook’s earlier settlement

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with the FTC.

That deal, announced early Wednesday morning, included requirements for Facebook to create an independent board tasked with overseeing company-wide privacy-related efforts and CEO Mark Zuckerberg to personally certify that the company is meeting the FTC’s requirements on a quarterly and annual basis. A false statement could result in civil penalties or even criminal charges.

It ended a more than year-long probe into whether the tech giant violated a 2012 order -- in which the company promised to protect consumers’ information -- about privacy after it inadvertently allowed political consulting firm Cambridge Analytica to access the personal data of millions of users.

“We’re making some major changes to how we build our services and run this company,” Zuckerberg said during an investor call. “This will require investing a significant amount of our engineering resources in building tools to review our products and the ways we use data.”

Yet investors seemed mostly unfazed by Facebook’s latest rough patch, buoyed by strong second-quarter earnings. The business continues to grow rapidly, reporting a 28 percent rise in revenue, compared to last year. It also estimated there were more than 2.7 billion monthly users across all of its apps, up slightly compared to the first quarter.

At the end of trading on Wednesday, the stock was up almost 4 percent, trading at $204.66 per share. Shares were up almost 59 percent in 2019.

But a bipartisan group of critics noted the $5 billion fine, while one of the highest penalties in privacy enforcement actions, is merely a blip for the sprawling company, which is worth more than $584 billion. In fact, Facebook posted its quarterly revenue of $16.6 billion on Wednesday -- more than three times the penalty.

According to The Washington Post, the FTC originally considered penalties worth tens of billions of dollars, but stopped short, settling for less after Facebook fiercely resisted its demands, worried about the possibility of a lengthy lawsuit.

“This is a joke,” Democratic presidential candidate Sen. Elizabeth Warren wrote on Twitter. “Facebook repeatedly violated users' privacy and this settlement imposes no real individual accountability and no major structural changes to the company—only a fine that's a fraction of what Facebook makes in a year.”

Likewise, Rep. Josh Hawley, R-Mo., warned the settlement was nothing more than a pricey Get-Out-Of-Jail-Free card that did little to change systemic practices already underway at Facebook.

“This settlement does nothing to change Facebook’s creepy surveillance of its own users & the misuse of user data,” he said. “It does nothing to hold executives accountable. It utterly fails to penalize Facebook in any effective way.”


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The House of Zuck on Wednesday revealed gains [link] in revenues, daily active users, and mobile advertising in the second quarter of 2019, as it took those massive settlement fees in its stride.

For the three months to June 30:

Revenues of $16.6bn were up 28 per cent from the year-ago quarter.

Net income was $2.6bn, a 49 per cent decrease on the quarter. This is largely due to a $2bn wedge Facebook coughed up, in addition to the $3bn already set aside, to foot the $5bn settlement fee owed to Uncle Sam's trade regulator, the FTC, regarding its privacy snafus, and a separate $1.1bn charge related to recent changes [PDF] in stock compensation rules. Facebook also owes America's financial watchdog $100m for misleading investors.

Earnings per share of $0.91 were short of the $1.88 analyst forecast, but Facebook notes that absent the tax and settlement charges, EPS would have been $1.99.

Daily active users were up 8 per cent, with 1.59 billion people using the antisocial network on a day-to-day basis. Monthly active users were also up 8 per cent, at 2.41 billion.