Facebook latest profits show FTC fine is a blip

Facebook's Mark Zuckerberg continues to weather ever storm that comes his way. Photo / Getty Images

Facebook on Wednesday announced another quarter of strong revenue growth, as Wall Street appeared unfazed by the company's historic US$5 billion (NZ$7.5 billion) privacy settlement with the U.S. Federal Trade Commission.

The social network said its second-quarter revenue, which is driven by advertising, grew by 28 per cent to US$16.9 billion, beating analyst estimates of US$16.49 billion. Net profit fell 49 per cent from the same period a year earlier to US$2.6 billion, dragged down by the FTC penalty.

But Facebook acknowledged there are more hurdles ahead. In its earnings report, Facebook disclosed that the FTC had informed the company in June that it had opened an antitrust investigation into its business. Adding to the woes, on Tuesday, the Department of Justice announced a sweeping antitrust investigation into Silicon Valley tech giants, the latest in a series of probes Facebook and other companies are facing around the globe.

Facebook's stock price approached record levels Wednesday ahead of the earnings release. It was slightly up in after-hours trading.

Over the last year, Facebook has faced withering privacy scandals resulting in Wednesday's settlements with the U.S., as well as slowing revenue and user growth as users in the U.S. and Europe abandon the platform - but its stock price has largely resisted.

Facebook on Wednesday said it set aside an additional US$2 billion for the FTC fine after booking US$3 billion of it last quarter, and another US$1.1 billion for income taxes stemming from a legal case, called Altera Corp. v. Commissioner, governing how corporate stock-based compensation is calculated and taxed.

Wednesday's FTC settlement concludes a 16-month federal investigation following the revelations last year that political consultancy Cambridge Analytica had improperly accessed data on 87 million Facebook users.

Facebook's stock "has been almost Teflon-like over the last two years," said Daniel Ives, Managing Director, Equity Research for WedBush. "I think it just speaks to the fact that, despite all the noise, they continue to execute. And as long as they continue to execute, all the other issues - FTC fine, the DOJ - will become background noise."

Ives said that the settlement announced Wednesday raises questions about how Facebook will operate in the future in light of the stipulations contained in the agreement. They require the company to submit to greater oversight of its privacy practices and Facebook chief executive Mark Zuckerberg must personally certify every three months that those practices are in compliance with the law.

"We are investing in building stronger privacy protections for everyone and on delivering new experiences for the people who use our services," Zuckerberg said in the earnings statement.

Since the Cambridge scandal broke, the CEO has repeatedly emphasized that the company is chastened and changed. Facebook has cracked down and restricted access to developers even further since the controversy. In announcing recent initiatives, such as plans for a new cryptocurrency, Facebook executives have stressed that they are taking a more cautious approach than in the past.

While regulators and lawmakers appear sceptical of that argument, Wall Street traders and Facebook's business partners do not.

"Advertisers remain dedicated to Facebook despite its problems," said eMarketer Principal Analyst Debra Aho Williamson."This company has repeatedly shown that it can grow both its ad revenue and its user base, even in the face of enormous challenges. Today's earnings release demonstrates that it still has that power."

- Washington Post