Yahoo Finance Facebook sets aside $4.28 BILLION to pay off penalties for privacy breaches
(Reuters) – Facebook announced on Wednesday that it has set aside US $3 billion, or AU $4.28 billion, to cover settlements with US regulators over its major data scandal of early 2018.
The US Federal Trade Commission (FTC) has been investigating revelations that the social media giant inappropriately shared information belonging to 87 million of its users with the now-defunct British political consulting firm Cambridge Analytica.
The probe has focussed on whether the sharing of data and other disputes violated a 2011 agreement with the FTC to safeguard user privacy. Facebook set aside AU$4.28 billion to cover anticipated costs associated with the settlement, but said the charges could reach as high as AU$8.55 billion.
If the settlement is in that range, it would be the largest civil penalty paid to the agency, said David Vladeck, a former FTC official now at Georgetown Law School.
"Everyone expected there would be a substantial civil penalty in this case," said Vladeck.
"There's no question that Facebook is going to have to settle this matter. Investors want this behind them."
The accrual cut the company's net income in the first quarter to AU$3.46 billion, or AU$1.21 per share.
Excluding the AU$4.28 billion it set aside, Facebook would have earned AU$2.69 a share, up from AU$2.41 the year prior and easily beating analysts' average estimate of $1.63 per share, according to IBES data from Refinitiv.
Facebook announces earnings; stocks jump 10 per cent
Facebook blew away Wall Street profit estimates in the first quarter as it kept a lid on the costs of making its social networks safer.
Shares of the world's biggest online social network jumped more than 10 percent after hours.
Total first-quarter revenue rose 26 percent to AU$21.53 billion from AU$17.1 billion last year, compared to analysts' average estimate of $15.0 billion.
Shares of Facebook rose 10 percent to AU$285.81 in after-hours trade, demonstrating the company's resilience despite a series of scandals over improperly shared user data and propaganda that made it the target of political scrutiny across the globe.
The company's shares lost a third of their value last year, after executives first warned about costs associated with its drive to improve safety and slowing growth in revenue and operating margin.
Total expenses in the first quarter were $16.82 billion, up 80 percent compared with a year ago. The operating margin fell to 22 percent from 46 percent a year ago, but would have been 42 percent without the one-time expense.
"This is a strong report suggesting that advertisers still see value in Facebook's platform, as they did before the controversies and scandals erupted," said Haris Anwar, senior analyst at financial markets platform Investing.com.
Executives have forecast that expenses will grow 40 to 50 percent in 2019, but say they expect the downward trend to taper off after this year as revenue from new ways of pushing ads and facilitating transactions offset the security spending.
Monthly and daily users of the main Facebook app compared to last quarter were both up 8 percent to 2.38 billion and 1.56 billion, respectively.
Estimates were for 2.4 billion monthly users and 1.6 billion daily users, according to Refinitiv averages.
(Reporting by Akanksha Rana in Bengaluru and Katie Paul in San Francisco; additional reporting by Diane Bartz in Washington; editing by Patrick Graham and Bill Rigby)
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